On the analytical/numerical pricing of American put options against binomial tree prices

Mark Joshi and Mike Staunton

Quantitative Finance, 2012, vol. 12, issue 1, 17-20

Abstract: We compare the bias in binomial trees against that in certain analytical/numerical valuation techniques with which they disagree. We consider the CRR tree, the COS method and the Leisen--Reimer as well as the Prekopa--Szantai exponentially smoothed method. We conclude that the binomial trees are unbiased and that the exponentially smoothed method is biased.

Date: 2012
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DOI: 10.1080/14697688.2011.649602

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