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Risks 2016, 4(2), 15; doi:10.3390/risks4020015

Improving Convergence of Binomial Schemes and the Edgeworth Expansion

Department of Mathematics, University of Kaiserslautern, 67663 Kaiserslautern, Germany
Financial Mathematics, Fraunhofer ITWM, Fraunhofer Platz 1, 67663 Kaiserslautern, Germany
Author to whom correspondence should be addressed.
Academic Editor: Alexander Szimayer
Received: 12 April 2016 / Revised: 10 May 2016 / Accepted: 13 May 2016 / Published: 23 May 2016
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
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Binomial trees are very popular in both theory and applications of option pricing. As they often suffer from an irregular convergence behavior, improving this is an important task. We build upon a new version of the Edgeworth expansion for lattice models to construct new and quickly converging binomial schemes with a particular application to barrier options. View Full-Text
Keywords: binomial model; Black–Scholes model; option pricing; accelerated convergence; weak convergence binomial model; Black–Scholes model; option pricing; accelerated convergence; weak convergence

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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Bock, A.; Korn, R. Improving Convergence of Binomial Schemes and the Edgeworth Expansion. Risks 2016, 4, 15.

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