Document Type

Article

Rights

Available under a Creative Commons Attribution Non-Commercial Share Alike 4.0 International Licence

Disciplines

Business and Management.

Publication Details

The Journal of Futures Markets

Abstract

We introduce a set of lattice techniques to the Leisen‐Reimer and Tian binomial models with a view to accelerating computation time and improving accuracy of American Option valuation. A level of accuracy and efficiency combined can be achieved that surpass commonly used analytical analogues. We compare these efficient lattice models with analytical formulae for pricing different groups of options according to the deepness of American quality and moneyness. Our results reveal that counter to received wisdom, lattices constructs produce greater speed and accuracy for all option categories relative to the best performing closed form American analogues.

DOI

https://doi.org/10.1002/fut.22178

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