Trees and Markov Chain Approximations
- 4.7k Downloads
This final chapter discusses numerical effects on tree methods. Furthermore, binomial, trinomial and multinomial trees will be interpreted as Markov chain approximations of solutions of SDEs. General higher order Markov chain approximations with given weak order of convergence will be described. In addition, the relationship with finite difference methods will be highlighted towards the end of the chapter. It is worth pointing out that jump diffusions can be rather easily approximated in a similar manner as will be described.
KeywordsOption Price Euler Scheme Weak Order Richardson Extrapolation European Call Option
Unable to display preview. Download preview PDF.