Lattice Tree Methods for Strongly Path Dependent Options

15 Pages Posted: 21 Jun 2009

See all articles by Yue Kuen Kwok

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics

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

Kwok, Yue Kuen, Lattice Tree Methods for Strongly Path Dependent Options (June 18, 2009). Available at SSRN: https://ssrn.com/abstract=1421736 or http://dx.doi.org/10.2139/ssrn.1421736

Yue Kuen Kwok (Contact Author)

Hong Kong University of Science & Technology - Department of Mathematics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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