Linear convergence of the default probability and the implied barrier by trees
Journal
Journal of Computational and Applied Mathematics
Journal Volume
475
Start Page
117038
ISSN
0377-0427
Date Issued
2026-03
Author(s)
Lu, Yu-Ming
Abstract
Assume the Black–Scholes model. This paper proves linear convergence rates for (1) the default probability and (2) the implied barrier of a down-and-out digital barrier call when the strike price equals the barrier, both computed by the binomial-trinomial tree. Numerical results confirm the linear convergence rates and lend support to the same rates for the more general step barrier.
SDGs
Publisher
Elsevier BV
Type
journal article