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arXiv · 1802.05614

On the binomial approximation of the American put

Damien Lamberton
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Abstract

We consider the binomial approximation of the American put price in the Black-Scholes model (with continuous dividend yield). Our main result is that the error of approximation is $O((ln n) $α$ /n)$ where n is the number of time periods and the exponent $α$ is a positive number, the value of which may differ according to the respective levels of the interest rate and the dividend yield.

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Damien Lamberton. 2018-12-11. On the binomial approximation of the American put. https://arxiv.org/abs/1802.05614

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