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In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. Essentially, the model uses a "discrete-time" (lattice based) model of the varying price over time of the underlying financial instrument, addressing cases where the closed-form Black–Scholes formula is wanting.
The Fuller calculator, sometimes called Fuller's cylindrical slide rule, is a cylindrical slide rule with a helical main scale taking 50 turns around the cylinder. This creates an instrument of considerable precision – it is equivalent to a traditional slide rule 25.40 metres (1,000 inches) long. It was invented in 1878 by George Fuller ...
The trinomial tree is a lattice-based computational model used in financial mathematics to price options. It was developed by Phelim Boyle in 1986. It is an extension of the binomial options pricing model, and is conceptually similar. It can also be shown that the approach is equivalent to the explicit finite difference method for option ...
Slide rule. Typical ten-inch (25 cm) student slide rule (Pickett N902-T simplex trig) A slide rule is a hand -operated mechanical calculator consisting of slidable rulers for evaluating mathematical operations such as multiplication, division, exponents, roots, logarithms, and trigonometry.
Jump process. A jump process is a type of stochastic process that has discrete movements, called jumps, with random arrival times, rather than continuous movement, typically modelled as a simple or compound Poisson process. [1]
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Essentially, the Monte Carlo method solves a problem by directly simulating the underlying (physical) process and then calculating the (average) result of the process. [1] This very general approach is valid in areas such as physics, chemistry, computer science etc. In finance, the Monte Carlo method is used to simulate the various sources of ...
Hyperbolic discounting is mathematically described as. where g(D) is the discount factor that multiplies the value of the reward, D is the delay in the reward, and k is a parameter governing the degree of discounting (for example, the interest rate). This is compared with the formula for exponential discounting: