Joshi’s Split Tree for Option Pricing
In a thorough study of binomial trees, Joshi introduced the split tree as a two-phase binomial tree designed to minimize oscillations, and demonstrated empirically its outstanding performance when applied to pricing American put options. Here we introduce a “flexible” version of Joshi’s tree, and de...
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| مؤلفون آخرون: | |
| التنسيق: | article |
| منشور في: |
2020
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| الموضوعات: | |
| الوصول للمادة أونلاين: | http://hdl.handle.net/11073/21450 |
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| _version_ | 1864513442415640576 |
|---|---|
| author | Leduc, Guillaume |
| author2 | Hot, Merima Nurkanovic |
| author2_role | author |
| author_facet | Leduc, Guillaume Hot, Merima Nurkanovic |
| author_role | author |
| dc.creator.none.fl_str_mv | Leduc, Guillaume Hot, Merima Nurkanovic |
| dc.date.none.fl_str_mv | 2020 2021-04-27T06:59:47Z 2021-04-27T06:59:47Z |
| dc.format.none.fl_str_mv | application/pdf |
| dc.identifier.none.fl_str_mv | Leduc, G.; Nurkanovic Hot, M. Joshi’s Split Tree for Option Pricing. Risks 2020, 8, 81. https://doi.org/10.3390/risks8030081 2227-9091 http://hdl.handle.net/11073/21450 10.3390/risks8030081 |
| dc.language.none.fl_str_mv | en_US |
| dc.publisher.none.fl_str_mv | MDPI |
| dc.relation.none.fl_str_mv | https://doi.org/10.3390/risks8030081 |
| dc.subject.none.fl_str_mv | Binomial option pricing Error analysis for non-self-similar binomial trees American options Black–Scholes |
| dc.title.none.fl_str_mv | Joshi’s Split Tree for Option Pricing |
| dc.type.none.fl_str_mv | Peer-Reviewed Published version info:eu-repo/semantics/publishedVersion info:eu-repo/semantics/article |
| description | In a thorough study of binomial trees, Joshi introduced the split tree as a two-phase binomial tree designed to minimize oscillations, and demonstrated empirically its outstanding performance when applied to pricing American put options. Here we introduce a “flexible” version of Joshi’s tree, and develop the corresponding convergence theory in the European case: we find a closed form formula for the coefficients of 1/n and 1/n³/² in the expansion of the error. Then we define several optimized versions of the tree, and find closed form formulae for the parameters of these optimal variants. In a numerical study, we found that in the American case, an optimized variant of the tree significantly improved the performance of Joshi’s original split tree. |
| format | article |
| id | aus_8e4ae3d250deb08f7a8bb0d64922009d |
| identifier_str_mv | Leduc, G.; Nurkanovic Hot, M. Joshi’s Split Tree for Option Pricing. Risks 2020, 8, 81. https://doi.org/10.3390/risks8030081 2227-9091 10.3390/risks8030081 |
| language_invalid_str_mv | en_US |
| network_acronym_str | aus |
| network_name_str | aus |
| oai_identifier_str | oai:repository.aus.edu:11073/21450 |
| publishDate | 2020 |
| publisher.none.fl_str_mv | MDPI |
| repository.mail.fl_str_mv | |
| repository.name.fl_str_mv | |
| repository_id_str | |
| spelling | Joshi’s Split Tree for Option PricingLeduc, GuillaumeHot, Merima NurkanovicBinomial option pricingError analysis for non-self-similar binomial treesAmerican optionsBlack–ScholesIn a thorough study of binomial trees, Joshi introduced the split tree as a two-phase binomial tree designed to minimize oscillations, and demonstrated empirically its outstanding performance when applied to pricing American put options. Here we introduce a “flexible” version of Joshi’s tree, and develop the corresponding convergence theory in the European case: we find a closed form formula for the coefficients of 1/n and 1/n³/² in the expansion of the error. Then we define several optimized versions of the tree, and find closed form formulae for the parameters of these optimal variants. In a numerical study, we found that in the American case, an optimized variant of the tree significantly improved the performance of Joshi’s original split tree.American University of SharjahMDPI2021-04-27T06:59:47Z2021-04-27T06:59:47Z2020Peer-ReviewedPublished versioninfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfLeduc, G.; Nurkanovic Hot, M. Joshi’s Split Tree for Option Pricing. Risks 2020, 8, 81. https://doi.org/10.3390/risks80300812227-9091http://hdl.handle.net/11073/2145010.3390/risks8030081en_UShttps://doi.org/10.3390/risks8030081oai:repository.aus.edu:11073/214502024-08-22T12:01:57Z |
| spellingShingle | Joshi’s Split Tree for Option Pricing Leduc, Guillaume Binomial option pricing Error analysis for non-self-similar binomial trees American options Black–Scholes |
| status_str | publishedVersion |
| title | Joshi’s Split Tree for Option Pricing |
| title_full | Joshi’s Split Tree for Option Pricing |
| title_fullStr | Joshi’s Split Tree for Option Pricing |
| title_full_unstemmed | Joshi’s Split Tree for Option Pricing |
| title_short | Joshi’s Split Tree for Option Pricing |
| title_sort | Joshi’s Split Tree for Option Pricing |
| topic | Binomial option pricing Error analysis for non-self-similar binomial trees American options Black–Scholes |
| url | http://hdl.handle.net/11073/21450 |