Now showing items 1-3 of 3
Convergence rate of regime-switching trees
Considering a general class of regime-switching geometric random walks and a broad class of piecewise twice differentiable payoff functions, we show that convergence of option prices occurs at a speed of order 𝒪 (𝑛-ᵝ), ...
Can High-Order Convergence of European Option Prices be Achieved with Common CRR-Type Binomial Trees?
Considering European call options, we prove that CRR-type binomial trees systematically underprice the value of these options, when the spot price is not near the money. However, we show that, with a volatility premium to ...
Option convergence rate with geometric random walks approximations
(Taylor & Frances Online, 2016)
We describe a broad setting under which, for European options, if the underlying asset form a geometric random walk then, the error with respect to the Black–Scholes model converges to zero at a speed of 1/𝑛 for continuous ...