Journal of Risk

The convergence of binomial trees for pricing the American put

Mark S. Joshi


We study 20 different implementation methodologies for each of 11 different choices of parameters of binomial trees and investigate the speed of convergence for pricing American put options numerically. We conclude that the most effective methods involve using truncation, Richardson extrapolation and sometimes smoothing.We do not recommend the use of a European as a control. The most effective trees are the Tian third-order moment matching tree and a new tree designed to minimize oscillations.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here