Korn–Kreer–Lenssen model

The Korn–Kreer–Lenssen model (KKL model) is a discrete

The dynamics is based on continuous time linear birth–death processes and analytic formulae for option prices and Greeks can be stated. Later work looks at market completion with general calls or puts.^[2] A comprehensive introduction may be found in the attached MSc-thesis.^[3]

The model belongs to the class of trinomial models and the difference to the standard trinomial tree is the following: if ${\displaystyle \Delta t}$ denotes the waiting time between two movements of the stock price then in the KKL-model ${\displaystyle \Delta t}$ remains finite and exponentially distributed whereas in trinomial trees the time is discrete and the limit ${\displaystyle \Delta t\rightarrow 0}$ is taken by numerical extrapolation afterwards.

See also

• Binomial options pricing model
• Trinomial tree
• Valuation of options
• Option: Model implementation

References