Trees and rounding
Posted: December 2nd, 2002, 7:26 pm
The number of steps in a tree is really an artifact of the computation and not an economic variable, so I was wondering whether the standard practice should be (using dollars):1. To round dollars to two decimal places at each node, or;2. Not round until all computations are complete.For example, if the model includes dividends, dividends are rounded when they are paid in the real world.Rounding would of course slow the computation, but would not rounding better reflect reality?