id: 05996068
dt: a
an: 05996068
au: Seydel, Rüdiger U.
ti: Lattice approach and implied trees.
so: Duan, Jin-Chuan (ed.) et al., Handbook of computational finance. Berlin:
    Springer (ISBN 978-3-642-17253-3/hbk; 978-3-642-17254-0/ebook).
    Springer Handbooks of Computational Statistics, 551-577 (2012).
py: 2012
pu: Berlin: Springer
la: EN
cc: 
ut: 
ci: Zbl 05822958
li: doi:10.1007/978-3-642-17254-0_20
ab: Summary: Lattice methods or tree methods have become standard tools for
    pricing many types of options, since they are robust and easy to
    implement. The basic method is built on a binomial tree and assumes
    constant volatility and constant relative node spacing. The tree grows
    from the initial spot price, until maturity is reached. There the
    payoff is evaluated, and a subsequent backward recursion yields the
    value of the option. The resulting discrete-time approach is consistent
    with the continuous Black-Scholes model. This basic lattice approach
    has been extended to cope with a variable local volatility. Here the
    lattice nodes are determined based on market data of European-style
    options. In this way an “implied tree” is created matching the
    volatility smile. This chapter introduces into tree methods. For the
    entire collection see Zbl 05822958.
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