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A probabilistic interpretation of the [theta]-method

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  • Hörfelt, Per

Abstract

This paper gives a probabilistic interpretation of a class of finite difference schemes often referred to as the [theta]-method. In particular, the present paper shows that for some parameter values the [theta]-method can been seen as a binomial tree with a random time.

Suggested Citation

  • Hörfelt, Per, 2003. "A probabilistic interpretation of the [theta]-method," Statistics & Probability Letters, Elsevier, vol. 62(2), pages 117-122, April.
    • Handle: RePEc:eee:stapro:v:62:y:2003:i:2:p:117-122
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    References listed on IDEAS

    as
    1. Steve Heston & Guofu Zhou, 2000. "On the Rate of Convergence of Discrete‐Time Contingent Claims," Mathematical Finance, Wiley Blackwell, vol. 10(1), pages 53-75, January.
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