The Trinomial Trees Model To Price Real Compound Options And Its Application

This paper described the trinomial trees option pricing theory, and studied in detail how toprice time-series compound option, causal compound option , as well as inter-project compoundoption using the common trees and trinomial trees that contained a mean-reversion . Finally,this paper took two specific real estate projects as example to validate feasibility and practicalityof the trinomial trees model through analyzing and studying compound options of investment inthe project.This paper simultaneously showed the advantages of the compound option approachcomparing to traditional methods.