Article thumbnail


By Carolyn W. Chang, Jack S. K. Chang and Yisong Sam Tian


We extend the binomial option pricing model to allow for more accurate price dynamics while retaining computational simplicity. The asset price in each binomial period evolves according to two independent and successive Bernoulli trials on trade occurrence/nonoccurrence and up/down price movement. Subordination leads to a trinomial tree with stochastic volatility in calendar time. We derive utility-dependent valuation results incorporating the leverage effect and test the model empirically. 2006 The Southern Finance Association and the Southwestern Finance Association.

DOI identifier: 10.1111/j.1475-6803.2006.00194.x
OAI identifier:
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://www.blackwell-synergy.c... (external link)

  • To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.

    Suggested articles