Error Estimates for Binomial Approximations of Game Options
نویسنده
چکیده
We justify and give error estimates for binomial approximations of game (Israeli) options in the Black–Scholes market with Lipschitz continuous path dependent payoffs which are new also for usual American style options. We show also that rational (optimal) exercise times and hedging self-financing portfolios of binomial approximations yield for game options in the Black–Scholes market “nearly” rational exercise times and “nearly” hedging self-financing portfolios with small average shortfalls and initial capitals close to fair prices of the options. The estimates rely on strong invariance principle type approximations via the Skorokhod embedding.
منابع مشابه
Binomial Approximations of Shortfall Risk for Game
We show that the shortfall risk of binomial approximations of game (Israeli) options converges to the shortfall risk in the corresponding Black–Scholes market considering Lipschitz continuous path dependent payoffs for both discrete and continuous time cases. This results are new also for usual American style options. The paper continues and extends the study of [6] where estimates for binomial...
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