Error estimates for binomial approximations of game options
AbstractWe justify and give error estimates for binomial approximations of game (Israeli) options in the Black--Scholes market with Lipschitz continuous path dependent payoffs which are new also for usual American style options. We show also that rational (optimal) exercise times and hedging self-financing portfolios of binomial approximations yield for game options in the Black--Scholes market ``nearly'' rational exercise times and ``nearly'' hedging self-financing portfolios with small average shortfalls and initial capitals close to fair prices of the options. The estimates rely on strong invariance principle type approximations via the Skorokhod embedding.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number math/0607123.
Date of creation: Jul 2006
Date of revision:
Publication status: Published in Annals of Applied Probability 2006, Vol. 16, No. 2, 984-1033
Contact details of provider:
Web page: http://arxiv.org/
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kaushik Amin & Ajay Khanna, 1994. "Convergence Of American Option Values From Discrete- To Continuous-Time Financial Models," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 4(4), pages 289-304.
- Gapeev Pavel V. & KÃ¼hn Christoph, 2005. "Perpetual convertible bonds in jump-diffusion models," Statistics & Risk Modeling, De Gruyter, De Gruyter, vol. 23(1/2005), pages 15-31, January.
- L.C.G. Rogers & E.J. Stapleton, 1997. "Fast accurate binomial pricing," Finance and Stochastics, Springer, vol. 2(1), pages 3-17.
- Andreas Kyprianou, 2004. "Some calculations for Israeli options," Finance and Stochastics, Springer, vol. 8(1), pages 73-86, January.
- Friedrich Hubalek & Walter Schachermayer, 1998. "When Does Convergence of Asset Price Processes Imply Convergence of Option Prices?," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 8(4), pages 385-403.
- Yuri Kifer, 2012. "Dynkin Games and Israeli Options," Papers 1209.1791, arXiv.org.
- Y. Iron & Y. Kifer, 2012. "Error estimates for binomial approximations of game put options," Papers 1206.0153, arXiv.org, revised Oct 2013.
- Yuri Kifer, 2007. "Correction. Error estimates for binomial approximations of game options," Papers math/0702423, arXiv.org.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If references are entirely missing, you can add them using this form.