Improving Convergence of Binomial Schemes and the Edgeworth Expansion

Alona Bock and Ralf Korn
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Alona Bock: Department of Mathematics, University of Kaiserslautern, 67663 Kaiserslautern, Germany
Ralf Korn: Department of Mathematics, University of Kaiserslautern, 67663 Kaiserslautern, Germany

Risks, 2016, vol. 4, issue 2, 1-22

Abstract: Binomial trees are very popular in both theory and applications of option pricing. As they often suffer from an irregular convergence behavior, improving this is an important task. We build upon a new version of the Edgeworth expansion for lattice models to construct new and quickly converging binomial schemes with a particular application to barrier options.

Keywords: binomial model; Black–Scholes model; option pricing; accelerated convergence; weak convergence (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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