Pricing European and American Options with Extrapolation

• Main Authors: Chao-Jung Chen, 陳昭蓉
• Other Authors: 呂育道
• Format: Others
• Language: en_US
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/49682992095375513429

碩士 === 國立臺灣大學 === 財務金融學研究所 === 91 === This thesis deals with European and American options with tree methods via extrapolation and provides an efficient methodology. Binomial and trinomial trees are widely used in numerical methods for derivatives pricing and applicable across a wide range of option types. However, convergence to the correct option price is oscillatory and nonmonotonic. This situation makes the tree method inaccurate and unsuitable for extrapolation. We fix the problem by pegging the strike price in the CRR method and make it applicable for extrapolation.