Journal of the Korean Society for Industrial and Applied Mathematics

  • 제15권1호
  • /
  • Pages.1-17
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  • 2011
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  • 1226-9433(pISSN)
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  • 1229-0645(eISSN)
한국산업응용수학회 (Korean Society for Industrial and Applied Mathematics)
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A COST-EFFECTIVE MODIFICATION OF THE TRINOMIAL METHOD FOR OPTION PRICING

  • 투고 : 2010.12.22
  • 심사 : 2010.12.31
  • 발행 : 2011.03.25
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초록

A new method for option pricing based on the trinomial tree method is introduced. The new method calculates the local average of option prices around a node at each time, instead of computing prices at each node of the trinomial tree. Local averaging has a smoothing effect to reduce oscillations of the tree method and to speed up the convergence. The option price and the hedging parameters are then obtained by the compact scheme and the Richardson extrapolation. Computational results for the valuation of European and American vanilla and barrier options show superiority of the proposed scheme to several existing tree methods.

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참고문헌

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피인용 문헌

  1. AN ADAPTIVE MULTIGRID TECHNIQUE FOR OPTION PRICING UNDER THE BLACK-SCHOLES MODEL vol.17, pp.4, 2011, https://doi.org/10.12941/jksiam.2013.17.295