Analytical binomial lookback options with double-exponential jumps |
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Authors: | Hyun Suk Park |
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Institution: | Pohang Mathematics Institute, Pohang University of Science and Technology, Pohang, 790-784, Republic of Korea |
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Abstract: | We study the problem of the convergence of the adjusted binomial lookback option in double-exponential jump diffusion models. By using the results of Dai, M., (2000). A modified binomial tree method for currency lookback options. Acta Mathematica Sinica, 16, 445–454; Kou, S., & Wang, H. (2004). Option pricing under a double exponential jump diffusion model. Management Science, 50, 1178–1192] and Park, H.S., Kim, K.I., & Qian, X. (2009). A Mathematical modeling for the Lookback option with jump diffusion using Binomial tree method. Journal of Computational and Applied Mathematics, preprint], we show the equivalence between the adjusted binomial tree method and the explicit difference scheme. The convergence is also theoretically proved through the notion of viscosity solution. Numerical results coincide with the theoretical results. |
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