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Lattice-Based Model

What is 'Lattice-Based Model'

An option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option's life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. The lattice model is particularly suited to the pricing of employee stock options, which have a number of unique attributes.

Explaining 'Lattice-Based Model'

The lattice model's flexibility in incorporating expected volatility changes is especially useful in certain circumstances, such as pricing employee options at early-stage companies. Such companies may expect lower volatility in their stock prices in the future as their businesses mature. This assumption can be factored into a lattice model, enabling more accurate option pricing than the Black-Scholes model, which inputs the same level of volatility over the life of the option.


Further Reading


A lattice-based model to evaluate variable annuities with guaranteed minimum withdrawal benefits under a regime-switching model
www.tandfonline.com [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …

A comparison of lattice based option pricing models on the rate of convergenceA comparison of lattice based option pricing models on the rate of convergence
www.sciencedirect.com [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …

American stochastic volatility call option pricing: A lattice based approachAmerican stochastic volatility call option pricing: A lattice based approach
link.springer.com [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …

Structural default modeling: A lattice-based approachStructural default modeling: A lattice-based approach
jod.pm-research.com [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …

A Lattice‐Based Method for Pricing Electricity Derivatives Under the Threshold ModelA Lattice‐Based Method for Pricing Electricity Derivatives Under the Threshold Model
www.tandfonline.com [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …

Design and fabrication of periodic lattice-based cellular structuresDesign and fabrication of periodic lattice-based cellular structures
www.tandfonline.com [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …

A new lattice-based scheme for swing option pricing under mean-reverting regime-switching jump-diffusion processesA new lattice-based scheme for swing option pricing under mean-reverting regime-switching jump-diffusion processes
www.sciencedirect.com [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …

A non‐lattice pricing model of American options under stochastic volatilityA non‐lattice pricing model of American options under stochastic volatility
onlinelibrary.wiley.com [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …

Lattice-based risk minimization training for unsupervised language model adaptationLattice-based risk minimization training for unsupervised language model adaptation
www.isca-speech.org [PDF]
… M. Costabile Department of Economics, Statistics and Finance, University of Calabria, Rende, Italy … The proposed model is based on a lattice that approximates the investment fund value … First, lattice-based models are effective tools when closed-form formulas are not available …


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