Error estimates for the binomial approximation of American put options

• 成果类型: Article
• 署名作者: Lamberton, D
• 署名单位: Universite Gustave-Eiffel
• 刊物名称: ANNALS OF APPLIED PROBABILITY
• ISSN/ISSBN: 1050-5164
• 发表日期: 1998
• 页码: 206-233
• 关键词: free-boundary; Discretization; CONVERGENCE; maturity

摘要

We establish some error estimates for the binomial approximation of American put prices in the Black-Scholes model. Namely, we prove that if P is the American put price and P-n its n-step binomial approximation, there exist positive constants c and C such that -c/n(2/3) less than or equal to P-n-P less than or equal to C/n(3/4). With an additional assumption on the interest rate and the volatility, a better upper bound is derived.