Optimal tree methods
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University of Cape Town
Although traditional tree methods are the simplest numerical methods for option pricing, much work remains to be done regarding their optimal parameterization and construction. This work examines the parameterization of traditional tree methods as well as the techniques commonly used to accelerate their convergence. The performance of selected, accelerated binomial and trinomial trees is then compared to an advanced tree method, Figlewski and Gao's Adaptive Mesh Model, when pricing an American put and a Down-And-Out barrier option.
Includes bibliographical references.
Rudd, R. 2014. Optimal tree methods. University of Cape Town.