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Can High-Order Convergence of European Option Prices be Achieved with Common CRR-Type Binomial Trees?

Leduc, Guillaume
Date
2015
Authors
Leduc, Guillaume
Advisor
Type
Peer-Reviewed
Article
Published version
Degree
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Can high order convergence of European option Prices be achieved with common CRR-type Binomial trees.pdf
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Description
Abstract
Considering European call options, we prove that CRR-type binomial trees systematically underprice the value of these options, when the spot price is not near the money. However, we show that, with a volatility premium to compensate this mispricing, any arbitrarily high order of convergence can be achieved, within the common CRR-type binomial tree framework.
DSpace URI
http://hdl.handle.net/11073/16667
External URI
https://doi.org/10.1007/s40840-015-0221-2
Collections
Department of Mathematics and Statistics
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