Lean Trees--A General Approach for Improving Performance of Lattice Models for Option Pricing
The well-known binomial and trinomial tree models for option pricing are examined from the point of view of numerical efficiency. Common lattices use a large part of time resources for calculations which are almost irrelevant for the solution. To avoid this waste of resources, the tree is reduced to a "lean" form which yields the same order of convergence, but with a reduction of numerical effort. In numerical tests it is shown that the proposed method leads to a significant improvement in real calculation time without loss of accuracy for a broad class of derivatives.
Year of publication: |
2004
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Authors: | Baule, Rainer ; Wilkens, Marco |
Published in: |
Review of Derivatives Research. - Springer. - Vol. 7.2004, 1, p. 53-72
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Publisher: |
Springer |
Saved in:
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