Economics at your fingertips  

The accuracy and efficiency of alternative option pricing approaches relative to a log‐transformed trinomial model

Hsuan‐Chi Chen, David M. Chen and San‐Lin Chung

Journal of Futures Markets, 2002, vol. 22, issue 6, 557-577

Abstract: This article presents a log‐transformed trinomial approach to option pricing and finds that various numerical procedures in the option pricing literature are embedded in this approach with choices of different parameters. The unified view also facilitates comparisons of computational efficiency among numerous lattice approaches and explicit finite difference methods. We use the root‐mean‐squared relative error and the minimum convergence step to evaluate the accuracy and efficiency for alternative option pricing approaches. The numerical results show that the equal‐probability trinomial specification of He ( 12 ) and Tian ( 25 ) and the sharpened trinomial specification of Omberg ( 21 ) outperform other lattice approaches and explicit finite difference methods. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:557–577, 2002

Date: 2002
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2019-03-19
Handle: RePEc:wly:jfutmk:v:22:y:2002:i:6:p:557-577