Can High-Order Convergence of European Option Prices be Achieved with Common CRR-Type Binomial Trees?
Considering European call options, we prove that CRR-type binomial trees systematically underprice the value of these options, when the spot price is not near the money. However, we show that, with a volatility premium to compensate this mispricing, any arbitrarily high order of convergence can be a...
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| Format: | article |
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2015
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| Online Access: | http://hdl.handle.net/11073/16667 |
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