This chapter moves from simulation-based approaches to lattice models—specifically binomial and trinomial trees—which are among the most widely used numerical techniques for option pricing. Unlike Monte Carlo, tree methods provide an intuitive, step-by-step evolution of the underlying asset price, making them especially useful for valuing American-style and exotic options where early exercise or path-dependence matters.

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Binomial and Trinomial Trees

  • Aaron De la Rosa

摘要

This chapter moves from simulation-based approaches to lattice models—specifically binomial and trinomial trees—which are among the most widely used numerical techniques for option pricing. Unlike Monte Carlo, tree methods provide an intuitive, step-by-step evolution of the underlying asset price, making them especially useful for valuing American-style and exotic options where early exercise or path-dependence matters.