Recombining Trinomial Tree
Posted: June 13th, 2017, 11:17 am
Please suggest a book/paper which discusses recombining Trinomial tree approach for pricing American options in detail.
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Recombining Trinomial Tree
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Re: Recombining Trinomial Tree
Posted: June 13th, 2017, 3:33 pm
Tian “A Modified Lattice Approach to Option Pricing”, Journal of Futures Markets, Vol. 13, 1993.
Re: Recombining Trinomial Tree
Posted: June 13th, 2017, 6:59 pm
"Truncation And Acceleration Of The Tian Tree For The Pricing Of American Put Options"
Ting Chen, Mark Joshi
https://papers.ssrn.com/sol3/papers.cfm ... id=1567218
Ting Chen, Mark Joshi
https://papers.ssrn.com/sol3/papers.cfm ... id=1567218
Re: Recombining Trinomial Tree
Posted: June 14th, 2017, 11:33 am
Is there a compelling reason (supervisor demands it, legacy code) to use trinomial? (it is only a simple explicit FDM, 1st order accurate and conditionally stable).
Why not go the whole way and use Crank Nicolson. And it allows you to calculate the greeks in one sweep.
https://mhittesdorf.wordpress.com/2013/ ... dividends/
I don't see any (e.g. mathematical) reason to use trinomial against a decent FD scheme.
//
One issue I've noticed: I coded Richardson extrapolation for binomial method but I did not get what I expected. I am rather sceptical of the mathematical applicability of RE for lattice models. You just cannot ignore discontinuous payoffs...
See
https://kluedo.ub.uni-kl.de/frontdoor/i ... docId/2166
Why not go the whole way and use Crank Nicolson. And it allows you to calculate the greeks in one sweep.
https://mhittesdorf.wordpress.com/2013/ ... dividends/
I don't see any (e.g. mathematical) reason to use trinomial against a decent FD scheme.
//
One issue I've noticed: I coded Richardson extrapolation for binomial method but I did not get what I expected. I am rather sceptical of the mathematical applicability of RE for lattice models. You just cannot ignore discontinuous payoffs...
See
https://kluedo.ub.uni-kl.de/frontdoor/i ... docId/2166
Re: Recombining Trinomial Tree
Posted: June 28th, 2017, 1:17 am
See also
Chan, Jiun Hong and Joshi, Mark S. and Tang, Robert and Yang, Chao, Trinomial or Binomial: Accelerating American Put Option Price on Trees (September 1, 2008). Available at SSRN: https://ssrn.com/abstract=1261745 or http://dx.doi.org/10.2139/ssrn.1261745
RE works if the pay-off is smoothed or the tree is adapted to the strike.
Chan, Jiun Hong and Joshi, Mark S. and Tang, Robert and Yang, Chao, Trinomial or Binomial: Accelerating American Put Option Price on Trees (September 1, 2008). Available at SSRN: https://ssrn.com/abstract=1261745 or http://dx.doi.org/10.2139/ssrn.1261745
RE works if the pay-off is smoothed or the tree is adapted to the strike.
Re: Recombining Trinomial Tree
Posted: June 28th, 2017, 9:16 am
Indeed. But is a bit of extra preprocessing.
From a FDM point of view, it probably means trinomial is just A-stable (like Crank Nicolson) I suspect and spurious eigenvalues decay slowly unless some kind of smoothing is performed.
From a FDM point of view, it probably means trinomial is just A-stable (like Crank Nicolson) I suspect and spurious eigenvalues decay slowly unless some kind of smoothing is performed.
Re: Recombining Trinomial Tree
Posted: August 6th, 2017, 8:20 pm
Trees: More beautiful Geometry!Is there a compelling reason (supervisor demands it, legacy code) to use trinomial? (it is only a simple explicit FDM, 1st order accurate and conditionally stable).
Why not go the whole way and use Crank Nicolson. And it allows you to calculate the greeks in one sweep.
https://mhittesdorf.wordpress.com/2013/ ... dividends/
I don't see any (e.g. mathematical) reason to use trinomial against a decent FD scheme.
Trees More Interesting History, read the rings!
Tree models more intuitive?
Beauty > 50%