Convergence rate of regime-switching trees

Authors

Guillaume Leduc, American University of Sharjah
Xiangchen Zeng, University of WollongongFollow

RIS ID

111897

Publication Details

Leduc, G. & Zeng, X. (2017). Convergence rate of regime-switching trees. Journal of Computational and Applied Mathematics, 319 56-76.

Abstract

Considering a general class of regime-switching geometric random walks and a broad class of piecewise twice differentiable payoff functions, we show that convergence of option prices occurs at a speed of order θ(n^-β), where β=1/2 when the payoff is discontinuous and β=1 otherwise.