A moments and strike matching binomial algorithm for pricing American Put options

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• 作者：Benjamin Jourdain and Antonino Zanette
• 关键词：Binary tree methods ; Option pricing ; Hedging ; American Put options
• 刊名：Decisions in Economics and Finance
• 出版年：2008
• 出版时间：May, 2008
• 年：2008
• 卷：31
• 期：1
• 页码：33-49
• 全文大小：293.7 KB

文摘

This paper is dedicated to a new binomial lattice method called Moments and Strike Matching (MSM) consistent with the Black–Scholes model in the limit of an infinite step number and such that the Strike K is equal to one of the final nodes of the tree. The method is very easy to implement, since the parameters are explicitly given. Asymptotic expansions are obtained for the MSM European Put price and delta, which motivates the use of Richardson extrapolation. A numerical comparison with the best lattice based numerical methods known in literature, shows the efficiency of the proposed algorithm for pricing and hedging American Put options.