Achieving smooth asymptotics for the prices of European options in binomial trees

A new binomial approximation to the Black-Scholes model is introduced. It is shown that, for digital options and vanilla European call and put options, a complete asymptotic expansion of the error in powers of n-1 exists. This is the first binomial tree for which an asymptotic expansion has been shown to exist.

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Year of publication:	2009
Authors:	Joshi, Mark
Published in:	Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 9.2009, 2, p. 171-176
Publisher:	Taylor & Francis Journals
Subject:	Binomial trees \| Richardson extrapolation \| Options \| Rate of convergence

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005141328