Research Article
Random dynamics and finance: constructing implied binomial trees from a predetermined stationary density
Wael Bahsoun, Paweł Góra, Silvia Mayoral, Manuel Morales,
Corresponding Author
Manuel Morales
University of Montreal, Que., Canada
Department of Mathematics and Statistics, University of Montreal, CP 6128 centre ville, succ. Montreal, Que., Canada H3C 3J7Search for more papers by this authorWael Bahsoun, Paweł Góra, Silvia Mayoral, Manuel Morales,
Corresponding Author
Manuel Morales
University of Montreal, Que., Canada
Department of Mathematics and Statistics, University of Montreal, CP 6128 centre ville, succ. Montreal, Que., Canada H3C 3J7Search for more papers by this authorAbstract
We introduce a general binomial model for asset prices based on the concept of random maps. The asymptotic stationary distribution for such model is studied using techniques from dynamical systems. In particular, we present a technique to construct a general binomial model with a predetermined stationary distribution. This technique is independent of the chosen distribution making our model potentially useful in financial applications. We briefly explore the suitability of our construction as an implied binomial tree. Copyright © 2006 John Wiley & Sons, Ltd.
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