Analysis of the Zigzag Convergence for Barrier Options with Binomial Trees
نویسنده
چکیده
منابع مشابه
Improving Convergence of Binomial Schemes and the Edgeworth Expansion
Binomial trees are very popular in both theory and applications of option pricing. As they often suffer from an irregular convergence behavior, improving this is an important task. We build upon a new version of the Edgeworth expansion for lattice models to construct new and quickly converging binomial schemes with a particular application to barrier options.
متن کاملLooking Forward to Pricing Options from Binomial Trees
We reconsider the valuation of barrier options by means of binomial trees from a “forward looking” prospective rather than the more conventional “backward induction” one used by standard approaches. This reformulation allows us to write closed-form expressions for the value of European and American put barrier-options on a non-dividend-paying stock.
متن کاملAchieving Higher Order Convergence for the Prices of European Options in Binomial Trees
A new family of binomial trees as approximations to the Black–Scholes model is introduced. For this class of trees, the existence of complete asymptotic expansions for the prices of vanilla European options is demonstrated and the first three terms are explicitly computed. As special cases, a tree with third order convergence is constructed and the conjecture of Leisen and Reimer that their tre...
متن کاملApplication of Finite Difference Method for Pricing Barrier Options
Abstract In recent years a number of authors pointed out significant stability and convergence problems while using Cox-Ross-Rubinstein binomial method to price and hedge barrier options. Different modifications were suggested to improve the convergence and stability of the binomial method. However, as this article shows, lattice approach in general has limited stability factor when applied to ...
متن کاملBinomial Approximations for Barrier Options of Israeli Style
We show that prices and shortfall risks of game (Israeli) barrier options in a sequence of binomial approximations of the Black–Scholes (BS) market converge to the corresponding quantities for similar game barrier options in the BS market with path dependent payoffs and the speed of convergence is estimated, as well. The results are new also for usual American style options and they are interes...
متن کامل