Abstract
Continuously Paying Options (CPOs) form a very natural class of derivatives for hedging risks coming from adverse movements of a continuously traded asset. We study the rate of convergence of CPOs evaluated under the binomial tree scheme when the payout function 𝝋 is piecewise C(2) subject to some boundedness conditions. We show that if 𝝋 is continuous, the rate of convergence is 𝑛¯¹ while it is n¯¹/² if 𝝋 is discontinuous.
