Industrial Engineering and Management Systems

  • 제10권2호
  • /
  • Pages.170-177
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  • 2011
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  • 1598-7248(pISSN)
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  • 2234-6473(eISSN)
대한산업공학회 (Korean Institute of Industrial Engineers)
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An Improved Binomial Method using Cell Averages for Option Pricing

  • 투고 : 2011.01.19
  • 심사 : 2011.04.29
  • 발행 : 2011.06.01
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초록

We present an improved binomial method for pricing financial deriva-tives by using cell averages. After non-overlapping cells are introduced around each node in the binomial tree, the proposed method calculates cell averages of payoffs at expiry and then performs the backward valuation process. The price of the derivative and its hedging parameters such as Greeks on the valuation date are then computed using the compact scheme and Richardson extrapolation. The simulation results for European and American barrier options show that the pro-posed method gives much more accurate price and Greeks than other recent lattice methods with less computational effort.

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참고문헌

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