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Tree methods

Author

Listed:
  • Jérôme Lelong

    (MATHFI - Financial mathematics - Inria Paris-Rocquencourt - Inria - Institut National de Recherche en Informatique et en Automatique - ENPC - École des Ponts ParisTech - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12, MATHFI - Mathématiques financières - LJK - Laboratoire Jean Kuntzmann - UPMF - Université Pierre Mendès France - Grenoble 2 - UJF - Université Joseph Fourier - Grenoble 1 - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - CNRS - Centre National de la Recherche Scientifique)

  • Antonino Zanette

    (MATHFI - Financial mathematics - Inria Paris-Rocquencourt - Inria - Institut National de Recherche en Informatique et en Automatique - ENPC - École des Ponts ParisTech - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12, Università degli Studi di Udine - University of Udine [Italie])

Abstract

Tree methods are among the most popular numerical methods to price financial derivatives. Mathematically speaking, they are easy to understand and do not require severe implementation skills to obtain algorithms to price financial derivatives. Tree methods basically consist in approximating the diffusion process modeling the underlying asset price by a discrete random walk. In this contribution, we provide a survey of tree methods for equity options, which focus on multiplicative binomial Cox-Ross-Rubinstein model.

Suggested Citation

  • Jérôme Lelong & Antonino Zanette, 2010. "Tree methods," Post-Print hal-00776713, HAL.
    • Handle: RePEc:hal:journl:hal-00776713
    DOI: 10.1002/9780470061602.eqf12017
    Note: View the original document on HAL open archive server: https://hal.science/hal-00776713
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    References listed on IDEAS

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