Good remark.In numerical analysis people use extrapolation and this is a way to say the following:" I want an accuracy of TOL = 0.001, just do it". In this case we compute until 2 consecutive solutions agree to TOL.

QuoteOriginally posted by: CuchulainnFermion How would one apply binomial method to Merton jump model or even Levy processes? has this been done anywhere?It seems to me that Amin (1993) developed a tree method for jump diffusions.Rgds,

binomial model?Models and their representations are often mixed. It usually helps to understand- which model represents a real world phenomenon "best" (isomorphic in the strictest sense)?- which algorithm gives a good representation (approximation) of certain models (identical i/o relations in te strictest sense)?"a^3" is the model of a cube. You can represent it by octrees, wirefarmes, bounded geometry, constructive solid geometry,... dependent on what you want to analyse.(if you need daynamic properties, you require csg representation)In my point of view binomial trees are no models and they are poor representations of financial models in the PDE world.But they might help to understand possible alternatives (like in real options).To me the "Hull-White Tree" sounds strange (Hull-White short rate models, yes).