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作者

来源

JOURNAL OF REAL ESTATE FINANCE AND ECONOMICS,Vol.55,Issue2,P.242-263

语言

英文

关键字

Lattice framework; Real estate derivatives; Stochastic interest rate; Transformation method; Probability density matching approach; Smooth convergence; MULTIVARIATE CONTINGENT CLAIMS; RISK; VALUATION; MODEL; OPTIONS; APPROXIMATIONS; PRICES

作者单位

[Zou, Dong; Gong, Pu] Huazhong Univ Sci & Technol, Sch Management, Wuhan 430074, Peoples R China. Gong, P (reprint author), Huazhong Univ Sci & Technol, Sch Management, Wuhan 430074, Peoples R China. E-Mail: gongpu@hust.edu.cn

摘要

In this paper, a general binomial lattice framework, which is both computationally simple and numerically accurate, is developed for pricing real estate derivatives with stochastic interest rate. To obtain a computationally simple binomial tree with constant volatility, the transformation method and the probability density matching approach are introduced. A tilt parameter is then added to the jump movements to obtain smooth convergence. Therefore, the Richardson extrapolation (RE) can be used to enhance the convergence of the discrete binomial lattice models to continuous models when pricing European options. In addition, our smooth convergent models can also be applied to pricing American options.