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Arbitrarily Fast CRR Schemes

Author

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  • Leduc, Guillaume

Abstract

We introduce a method for the approximation of a lognormal stock price process by a Cox, Ross and Rubinstein (CRR) type of binomial scheme, which allows to reach arbitrary speed of convergence of order O(n^{-(N/2)}), for any integer N>0.

Suggested Citation

  • Leduc, Guillaume, 2012. "Arbitrarily Fast CRR Schemes," MPRA Paper 42094, University Library of Munich, Germany, revised 20 Oct 2012.
  • Handle: RePEc:pra:mprapa:42094
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    File URL: https://mpra.ub.uni-muenchen.de/42094/1/MPRA_paper_42094.pdf
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    References listed on IDEAS

    as
    1. Lo-Bin Chang & Ken Palmer, 2007. "Smooth convergence in the binomial model," Finance and Stochastics, Springer, vol. 11(1), pages 91-105, January.
    2. Francine Diener & MARC Diener, 2004. "Asymptotics of the price oscillations of a European call option in a tree model," Mathematical Finance, Wiley Blackwell, vol. 14(2), pages 271-293.
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    Cited by:

    1. Alona Bock & Ralf Korn, 2016. "Improving Convergence of Binomial Schemes and the Edgeworth Expansion," Risks, MDPI, Open Access Journal, vol. 4(2), pages 1-22, May.

    More about this item

    Keywords

    European options; binomial scheme error; Black-Scholes;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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