Achieving smooth asymptotics for the prices of European options in binomial trees

Mark Joshi

Quantitative Finance, 2009, vol. 9, issue 2, 171-176

Abstract: A new binomial approximation to the Black-Scholes model is introduced. It is shown that, for digital options and vanilla European call and put options, a complete asymptotic expansion of the error in powers of n-1 exists. This is the first binomial tree for which an asymptotic expansion has been shown to exist.

Keywords: Binomial trees; Richardson extrapolation; Options; Rate of convergence (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/14697680802624955

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