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Trinomial or Binomial: Accelerating American Put Option Price on TreesJiun Hong ChanUniversity of Melbourne - Centre for Actuarial Studies Mark S. JoshiUniversity of Melbourne - Centre for Actuarial Studies Robert TangUniversity of Melbourne - Centre for Actuarial Studies Chao YangUniversity of Melbourne - Centre for Actuarial Studies September 1, 2008 Abstract: We investigate the pricing performance of eight trinomial trees and one binomial tree, which was found to be most effective in an earlier paper, under twenty different implementation methodologies for pricing American put options. We conclude that the binomial tree, the Tian third order moment matching tree with truncation, Richardson extrapolation and smoothing performs better than the trinomial trees.
Number of Pages in PDF File: 18 Keywords: binomial tree, trinomial tree, American put option, speed JEL Classification: G13 working papers seriesDate posted: September 2, 2008Suggested CitationContact Information
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