On the binomial approximation of the American put
Abstract
We consider the binomial approximation of the American put price in the Black-Scholes model (with continuous dividend yield). Our main result is that the error of approximation is $O((ln n) α /n)$ where n is the number of time periods and the exponent α is a positive number, the value of which may differ according to the respective levels of the interest rate and the dividend yield.
Domains
Probability [math.PR]
Origin : Files produced by the author(s)
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