Binomial and trinomial tree methods in derivatives pricing / Ettienne van Wyk

Tree methods for the valuation of financial derivative securities represent a recognizedand well-established pricing paradigm. It has formed part of the financial engineer's"toolbox" for close on 30 years. The tree approach is multi-dimensional though: thereare for example, various ways in which trees can be parameterized. Incorporating eccentricitiesof the financial markets like the paying of discrete dividends and volatilityskews add some further complexity to the approach. A full perspective on the placeof tree methods requires knowledge of the relation between the said and other pricingparadigms like numerical integration techniques and finite difference methods. Convergenceproperties are of definite interest to a practitioner as well. This dissertationaims to provide a general introduction to tree methods, and well by treating on theenumerated issues.