Binomial Approximations for Barrier Options of Israeli Style
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Publication:5198539
DOI10.1007/978-0-8176-8089-3_22zbMATH Open1222.91059arXiv0907.4136OpenAlexW1748210162MaRDI QIDQ5198539FDOQ5198539
Authors: Yan Dolinsky, Yuri Kifer 
Publication date: 8 August 2011
Published in: Annals of the International Society of Dynamic Games (Search for Journal in Brave)
Abstract: We show that prices and shortfall risks of game (Israeli) barrier options in a sequence of binomial approximations of the Black--Scholes (BS) market converge to the corresponding quantities for similar game barrier options in the BS market with path dependent payoffs and the speed of convergence is estimated, as well. The results are new also for usual American style options and they are interesting from the computational point of view, as well, since in binomial markets these quantities can be obtained via dynamical programming algorithms. The paper continues the study of [11]and [7] but requires substantial additional arguments in view of pecularities of barrier options which, in particular, destroy the regularity of payoffs needed in the above papers.
Full work available at URL: https://arxiv.org/abs/0907.4136
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- scientific article; zbMATH DE number 5135018
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Derivative securities (option pricing, hedging, etc.) (91G20) Applications of stochastic analysis (to PDEs, etc.) (60H30)
Cited In (8)
- Binomial approximation of Brownian motion and its maximum
- Dynkin's games and Israeli options
- Recombining tree approximations for optimal stopping for diffusions
- Applications of weak convergence for hedging of game options
- On the rate of convergence of barrier option prices in binomial market to those in continuous time market
- Error estimates for binomial approximations of game options
- Shortfall risk approximations for American options in the multidimensional Black-Scholes model
- Limit theorems for partial hedging under transaction costs
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