Risk-Neutral Pricing of Random-Expiry Options Using Trinomial Trees
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arXiv
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| Hauptverfasser: | , |
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| Format: | Preprint |
| Veröffentlicht: |
2025
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| _version_ | 1866914001768677376 |
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| author | Bossu, Sebastien Grabchak, Michael |
| author_facet | Bossu, Sebastien Grabchak, Michael |
| contents | Random-expiry options are nontraditional derivative contracts that may expire early based on a random event. We develop a methodology for pricing these options using a trinomial tree, where the middle path is interpreted as early expiry. We establish that this approach is free of arbitrage, derive its continuous-time limit, and show how it may be implemented numerically in an efficient manner. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2508_17014 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Risk-Neutral Pricing of Random-Expiry Options Using Trinomial Trees Bossu, Sebastien Grabchak, Michael Pricing of Securities Computational Finance 91G20, 91G60, 60J65, 60F05 Random-expiry options are nontraditional derivative contracts that may expire early based on a random event. We develop a methodology for pricing these options using a trinomial tree, where the middle path is interpreted as early expiry. We establish that this approach is free of arbitrage, derive its continuous-time limit, and show how it may be implemented numerically in an efficient manner. |
| title | Risk-Neutral Pricing of Random-Expiry Options Using Trinomial Trees |
| topic | Pricing of Securities Computational Finance 91G20, 91G60, 60J65, 60F05 |
| url | https://arxiv.org/abs/2508.17014 |