Recombining tree approximations for Game Options in Local Volatility models

Benjamin Gottesman Berdah

Papers from arXiv.org

Abstract: In this paper we introduce a numerical method for optimal stopping in the framework of one dimensional diffusion. We use the Skorokhod embedding in order to construct recombining tree approximations for diffusions with general coefficients. This technique allows us to determine convergence rates and construct nearly optimal stopping times which are optimal at the same rate. Finally, we demonstrate the efficiency of our scheme with several examples of game options.

Date: 2020-07, Revised 2020-07
New Economics Papers: this item is included in nep-cmp and nep-rmg
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