Abstract
The binomial tree method, first proposed by Cox, Ross, and Rubinstein [Journal of Financial Economics, 7 (1979), pp. 229-263], is one of the most popular approaches to pricing options. By introducing an additional path-dependent variable, such methods can be readily extended to the valuation of path-dependent options. In this paper, using numerical analysis and the notion of viscosity solutions, we present a unifying theoretical framework to show the uniform convergence of binomial tree methods for European/American path-dependent options, including arithmetic average options, geometric average options, and lookback options.
| Original language | English |
|---|---|
| Pages (from-to) | 1094-1109 |
| Number of pages | 16 |
| Journal | SIAM Journal on Numerical Analysis |
| Volume | 42 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - Jul 2004 |
| Externally published | Yes |
Keywords
- Binomial tree method
- Convergence
- European/American path-dependent options
ASJC Scopus subject areas
- Numerical Analysis
- Computational Mathematics
- Applied Mathematics
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