On the binomial approximation of the American put

Damien Lamberton 1, 2
2 MATHRISK - Mathematical Risk Handling
Inria de Paris, ENPC - École des Ponts ParisTech, UPEM - Université Paris-Est Marne-la-Vallée
Abstract : 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.
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Submitted on : Monday, December 10, 2018 - 2:49:41 PM
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  • HAL Id : hal-01709298, version 2
  • ARXIV : 1802.05614

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Damien Lamberton. On the binomial approximation of the American put. Applied Mathematics and Optimization, Springer Verlag (Germany), In press. ⟨hal-01709298v2⟩

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