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The Algorithm for Real-Options Evaluation Based on Quantum Binomial Model

Qiu Wan-hua

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Abstract

This paper introduces the quantum model of binomial option pricing.It shows that the new binomial option pricing formula,proposed by Zeqian Chen,is reasonable in view of project life cycle.This new formula is complementary with the classic C-R-R binomial option pricing formula,and completes the binomial model.Taking advantage of the two binomial option pricing formulas,this paper puts forward an algorithm for real-options evaluation.At last,one numerical example is presented.

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What this paper is about

This paper introduces the quantum model of binomial option pricing.It shows that the new binomial option pricing formula,proposed by Zeqian Chen,is reasonable in view of project life cycle.This new formula is complementary with the classic C-R-R binomial option pricing formula,and completes the binomial model.Taking advantage of the two binomial option pricing formulas,this paper puts forward an algorithm for real-options evaluation.At last,one numerical example is presented.

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Available abstract

This paper introduces the quantum model of binomial option pricing.It shows that the new binomial option pricing formula,proposed by Zeqian Chen,is reasonable in view of project life cycle.This new formula is complementary with the classic C-R-R binomial option pricing formula,and completes the binomial model.Taking advantage of the two binomial option pricing formulas,this paper puts forward an algorithm for real-options evaluation.At last,one numerical example is presented.

Key concepts: Binomial options pricing model, Trinomial tree, Binomial (polynomial), Binomial distribution, Chen, Finite difference methods for option pricing, Valuation of options, Binomial theorem

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