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Binomial Model

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Binomial Model
A model for mathematically pricing options. The model divides the time between the writing of an option and its expiration into many small increments. It considers changes to the price of the underlying asset during each increment and how that would affect what the option price ought to be. Along with the Black-Scholes model, it is a very common option pricing model.
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When the dependent variable is the number of valid patents, which is a count event, we can estimate the Poisson model or Negative Binomial model and use the method of quasi-generalized pseudo maximum likelihood estimation (QGPMLE; Gourieroux, Monfort, and Trognon 1984).
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If the additional parameter [alpha] is equal to zero, the data are Poisson; if not, the negative binomial model is utilized.
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In the option pricing theory, which falls into two folds; Black-Scholes model (continuoustime approach) and Binomial model (discretetime approach), the value of a European call option can be obtained by solving the partial differential equation derived by Black and Scholes (1973), subject to one terminal and two boundary conditions.
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