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This paper examines the pricing of options by approximating extensions of the Black-Scholes setup in which volatility follows a separate diffusion process. It gereralizes the well-known binomial model, constructing a discrete two-dimensional lattice. We discuss convergence issues extensively and...
Persistent link: https://www.econbiz.de/10004968228
This paper discusses the pitfalls in the pricing of barrier options a pproximations of the underlying continuous processes via discrete lattice models. These problems are studied first in a Black-Scholes model. Improvements result from a trinomial model and a further modified model where price...
Persistent link: https://www.econbiz.de/10004968297
Persistent link: https://www.econbiz.de/10005125065