Abstract
A large range of options exist for which the boundary conditions of the Black- Scholes differential equation are too complex to solve analytically; an example being the American option. One therefore has to rely on numerical price computation. The best known methods for this is to approximate the stock price process by a discrete time stochastic process, or, as in the approach followed by Cox, Ross, Rubinstein, model the stock price process as a discrete time process from the start. By doing this, the options time to maturity T is decomposed into n equidistant time steps of length
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