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.
Publié le : 2006-05-14
Classification:
Game options,
Dynkin games,
complete markets,
binomial approximation,
Skorokhod embedding,
91B28,
60F15,
91A05
@article{1151592257,
author = {Kifer, Yuri},
title = {Error estimates for binomial approximations of game options},
journal = {Ann. Appl. Probab.},
volume = {16},
number = {1},
year = {2006},
pages = { 984-1033},
language = {en},
url = {http://dml.mathdoc.fr/item/1151592257}
}
Kifer, Yuri. Error estimates for binomial approximations of game options. Ann. Appl. Probab., Tome 16 (2006) no. 1, pp. 984-1033. http://gdmltest.u-ga.fr/item/1151592257/