Computationally simple lattice methods for option and bond pricing |
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Authors: | Massimo Costabile Arturo Leccadito Ivar Massabó |
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Institution: | 1.Department of Scienze Aziendali,University of Calabria,Rende (CS),Italy |
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Abstract: | We propose new lattice-based algorithms for option and bond pricing, which rely on computationally simple trees, i.e., trees
with the number of nodes that grows at most linearly in the number of time intervals. Contrary to commonly used methods, the
target diffusion is approximated directly, without having to transform the original process into a constant volatility process.
The discrete approximating process converges to the target continuous process, and the proposed algorithms are shown to be
efficient and accurate for pricing purposes. |
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Keywords: | |
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