Abstract
The cosine willow tree method (Ma et al., 2021) provides a first lattice framework to price options and calculate risk measures under various Lévy process models. However, it may fail under some circumstances due to the failure in moment matching by the Johnson curve. In this paper, we propose a more robust approach to construct a willow tree via numerical integration. Since the moment matching by the Johnson curve is avoided, the new approach provides a better convergence than the cosine willow tree method. Finally, numerical experiments are carried out to support our claims.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.