The valuation of multivariate contingent claims under transformed trinomial approaches

Chuang Chang Chang, Jun Biao Lin

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


This study develops a transformed-trinomial approach for the valuation of contingent claims written on multiple underlying assets. Our model is characterized by an extension of the Camara and Chung (J Futur Mark 26: 759-787, 2006) transformed-binomial model for pricing options with one underlying asset, and a discrete-time version of the Schroder (J Finance 59(5): 2375-2401, 2004) model. However, unlike the Schroder model, our model can facilitate straightforward valuation of American-style multivariate contingent claims. The major advantage of our transformed-trinomial approach is that it can easily tackle the volatility skew observed within the markets. We go on to use numerical examples to demonstrate the way in which our transformed-trinomial approach can be utilized for the valuation of multivariate contingent claims, such as binary options.

Original languageEnglish
Pages (from-to)23-36
Number of pages14
JournalReview of Quantitative Finance and Accounting
Issue number1
StatePublished - Jan 2010


  • Binary options
  • Multivariate contingent claims
  • Transformed-trinomial approaches


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