Embedding and the convergence of the binomial and trinomial tree schemes. (English) Zbl 1081.60524
Lyons, Terry J. (ed.) et al., Numerical methods and stochastics. Proceedings of the workshop, Waterloo, Ontario, Canada, April 20–23, 1999. Providence, RI: AMS, American Mathematical Society (ISBN 0-8218-1994-1). Fields Inst. Commun. 34, 101-121 (2002).
Summary: This paper studies the regularities and irregularities of the convergence of the binomial and trinomial tree schemes. It is shown that these and other schemes can be embedded in the Black-Scholes model by Skorokhod embedding. This method is used to study their detailed behavior. Numerical examples illustrate many of the conclusions.
For the entire collection see [Zbl 1001.00032].
For the entire collection see [Zbl 1001.00032].
MSC:
| 60G40 | Stopping times; optimal stopping problems; gambling theory |
| 60H30 | Applications of stochastic analysis (to PDEs, etc.) |
| 60J65 | Brownian motion |
| 91G20 | Derivative securities (option pricing, hedging, etc.) |
