18 Pages Posted: 2 Sep 2008
Date Written: September 1, 2008
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.
Keywords: binomial tree, trinomial tree, American put option, speed
JEL Classification: G13
Suggested Citation: Suggested Citation
Chan, Jiun Hong and Joshi, Mark S. and Tang, Robert and Yang, Chao, Trinomial or Binomial: Accelerating American Put Option Price on Trees (September 1, 2008). Available at SSRN: https://ssrn.com/abstract=1261745 or http://dx.doi.org/10.2139/ssrn.1261745
By Mark Joshi