An Empirical Study on Binomial Option Pricing Model Based on MCMC
Xiong Bing-zhong · Journal of Jiaxing University · 2010
The binomial option pricing model is widely used in the financial derivatives trading market for its intuition, easy - understanding and obvious economic meaning.However,the prices given by the binary model differ significantly from the actual market prices,which is mainly caused by the underlying volatility of return on assets of different estimates.In this paper,the author estimates this important parameter based on the MCMC method through the China market,and uses the actual data to compare pricing effects of the usual binary tree model and the binomial option pricing model based on MCMC.The results show that the effects of binomial option pricing model based MCMC is more accurate than the usual binomial option pricing model although they both underestimate the option price of market.