On the binomial approximation of the American put

Damien Lamberton
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Damien Lamberton: LAMA, MATHRISK

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Abstract: We consider the binomial approximation of the American put price in the Black-Scholes model (with continuous dividend yield). Our main result is that the error of approximation is $O((ln n) $\alpha$ /n)$ where n is the number of time periods and the exponent $\alpha$ is a positive number, the value of which may differ according to the respective levels of the interest rate and the dividend yield.

Date: 2018-02, Revised 2018-12
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Citations: View citations in EconPapers (2)

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