Trees and Markov Chain Approximations

  • Eckhard PlatenEmail author
  • Nicola Bruti-Liberati
Part of the Stochastic Modelling and Applied Probability book series (SMAP, volume 64)


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.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2010

Authors and Affiliations

  1. 1.School of Finance and Economics, Department of Mathematical SciencesUniversity of Technology, SydneyBroadwayAustralia

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