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Trinomial or binomial: Accelerating American put option price on trees
Author(s) -
Chan Jiun Hong,
Joshi Mark,
Tang Robert,
Yang Chao
Publication year - 2009
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20389
Subject(s) - trinomial , trinomial tree , binomial options pricing model , binomial (polynomial) , mathematics , extrapolation , econometrics , tree (set theory) , mathematical economics , statistics , valuation of options , combinatorics
We investigate the pricing performance of eight trinomial trees and one binomial tree, which was found to be most effective in an earlier study, under 20 different implementation methodologies for pricing American put options. We conclude that the binomial tree, the Tian third‐order moment‐matching tree with truncation, Richardson extrapolation, and smoothing, performs better than the trinomial trees. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:826–839, 2009