On Cox-Ross-Rubinstein Pricing Formula for Pricing Compound Option

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Javed Hussain, Bareerah Khan, On Cox-Ross-Rubinstein Pricing Formula for Pricing Compound Option, Int. J. Anal. Appl., 18 (1) (2020), 129-148.

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Javed Hussain, Bareerah Khan

Abstract

The fundamental objective of this paper is twofold. Firstly, to derive the Cox-Ross-Rubinstein type new formula for risk neutral pricing of European compound call option, where the underlying asset is also a European call option. Thirdly, to prove that our newly derived CRR risk neutral pricing formula for compound call option, converges in distribution to the well known, continuous time Black-Scholes formula for pricing the compound call option on call.

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