Date of Completion
Spring 5-1-2017
Thesis Advisor(s)
Alexander Russell
Honors Major
Applied Mathematical Sciences
Disciplines
Finance and Financial Management | Other Applied Mathematics
Abstract
The binomial asset-pricing model is used to price financial derivative securities. This text will begin by going over the probability concepts necessary to understand this discrete-time model. It then develops the theory behind the binomial model and different properties that arise. It shows how to use the binomial model to predict future stock prices, and then uses this information to price derivative securities. It initially focuses on the European call option, but goes on to provide a pricing method for the American put option. However, many of the theorems developed are applicable to all derivative securities. The text wraps up by considering a different method used in pricing derivative securities, the Black-Scholes model, which is based on continuous-time concepts.
Recommended Citation
Cosgrove, Kelly L., "Mathematical Modeling of Financial Derivative Pricing" (2017). Honors Scholar Theses. 515.
https://digitalcommons.lib.uconn.edu/srhonors_theses/515