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Convergence of the Critical Price In the Approximation of American Options
Author(s) -
Lamberton Damien
Publication year - 1993
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.1993.tb00086.x
Subject(s) - convergence (economics) , mathematics , economics , binomial options pricing model , put option , mathematical economics , black–scholes model , valuation of options , econometrics , value (mathematics) , actuarial science , statistics , volatility (finance) , economic growth
We consider the American put option in the Black‐Scholes model. When the value of the option is computed through numerical methods (such as the binomial method and the finite difference method) the approximation yields an approximate critical price. We prove the convergence of this approximate critical price towards the exact critical price.