Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
The modified willow tree algorithm
Ulrich G. Haussmann, Liqing Yan
Abstract
ABSTRACT
We develop a modified willow tree algorithm for option pricing. Our numerical results show that the modified algorithm approximates the true prices more quickly and precisely than the binomial tree algorithm, especially in d-factor models for d = 2, 3, 4, 5. A bound on the theoretical rate of convergence of the modified willow tree algorithm is established.
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