On the binomial approximation of the American put

Damien Lamberton (1, 2)

1 LAMA - Laboratoire d'Analyse et de Mathématiques Appliquées
2 MATHRISK - Mathematical Risk Handling

We consider the binomial approximation of the American put price in the Black-Scholes model (with continuous dividend yield). Our main result is that the error of approximation is O((ln n) α /n) where n is the number of time periods and the exponent α is a positive number, the value of which may differ according to the respective levels of the interest rate and the dividend yield.

Domaines: Probabilités [math.PR]

Damien Lamberton. On the binomial approximation of the American put. 2018. ⟨hal-01709298v1⟩