Abstract
An American put option can be modelled as a variational inequality. With a penalization approximation to this variational inequality, the convergence rate \(O\big((\Delta x)^{2/3}\big)\) of the Binomial Tree Scheme is obtained in this paper.
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Liang, J., Hu, B., Jiang, L. et al. On the rate of convergence of the binomial tree scheme for American options. Numer. Math. 107, 333–352 (2007). https://doi.org/10.1007/s00211-007-0091-0
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DOI: https://doi.org/10.1007/s00211-007-0091-0