On the convergence order of a binary tree approximation of symmetrized diffusion processes

Jiro Akahori, Jie Yen Fan and Yuri Imamura

Mathematics and Computers in Simulation (MATCOM), 2023, vol. 211, issue C, 263-277

Abstract: The price of a barrier option is often computed numerically. Due to the path dependency, the convergence rate of such numerical approximation is generally of order 1/2. In this paper, we show that the convergence order can be achieved at 1 under certain condition. This confirms a numerical analysis done previously by the third author with others.

Keywords: Barrier option; Numerical analysis; Convergence order; Symmetrized diffusion; Markov chain; Brownian motion (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:211:y:2023:i:c:p:263-277

DOI: 10.1016/j.matcom.2023.03.030

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