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J. Comp. Math., Volume 22. |
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Convergence of the Explicit Difference Scheme and the Binomial Tree Method for American Options Li Shang Jiang 1, Min Dai 2 1 Institute of Mathematics, Tongji University, Shanghai 200092, China2 Department of Financial Mathematics, Peking University, Beijing 100871, China Abstract This paper is concerned with numerical methods for American option pricing. We employ numerical analysis and the notion of viscosity solution to show uniform convergence of the explicit difference scheme and the binomial tree method. We also prove the existence and convergence of the optimal exercise boundaries in the above approximations.
Key words: American option; Explicit difference; Binomial tree method; Convergence; Numerical analysis; Viscosity solution. |