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Milne, Frank
Madan, Dilip
Shefrin, Hersh
Year of Publication: 
Series/Report no.: 
Queen's Economics Department Working Paper 1162
The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths for a wide variety of complete market structures. In the discontinuous case a Merton-type formula is shown to result, provided jump probabilities are replaced by their corresponding Arrow-Debreu prices.
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Working Paper

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