Valuing options using standard lattice and finitedifference methods often involves much extra computational effort because the grid or lattice generally includes computations at levels of the underlying that are practically unfeasible. This article details a method of general application that curtails ranges of the underlying for which calculations are carried out, achieving considerable savings in computational effort with virtually no loss in accuracy. Extremely simple to implement and wide-ranging in scope, this is a canonical tool that can be used to complement virtually any grid or lattice method.
ASJC Scopus subject areas
- Economics and Econometrics