Achieving Smooth Asymptotics for the Prices of European Options in Binomial Trees
Mark S. Joshi
University of Melbourne - Centre for Actuarial Studies
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 that a complete asymptotic expansion of the error in powers of 1/n exists. This is the first binomial tree for which such an asymptotic expansion has been shown to exist.
Number of Pages in PDF File: 15
Keywords: binomial trees, Richardson extrapolation, options, rate of convergence
JEL Classification: G13working papers series
Date posted: September 5, 2006 ; Last revised: February 14, 2008
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 0.500 seconds