Lattice Tree Methods for Strongly Path Dependent Options
15 Pages Posted: 21 Jun 2009
Date Written: June 18, 2009
Abstract
This review article summarizes the applications of the forward shooting grid method to pricing of various types of strongly path dependent options. The forward shooting grid approach is characterized by augmenting an auxiliary state vector at each node in the usual lattice tree, which serves to capture the path dependent feature of the option. Examples of path dependent derivatives considered include the lookback options, Asian options, callable convertible bonds, and call options with strike reset feature.
Keywords: forward shooting grid method, path dependent options, reset feature
JEL Classification: G12, G13
Suggested Citation: Suggested Citation