Option Pricing: Extensions to Basic Numerical Methods
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Option Pricing: Extensions to Basic Numerical Methods

Intuition Publishing
Updated Sep 24, 2020

The binomial tree method is the most basic of the lattice approaches, and it has been extended to the trinomial tree, which uses three possible future values, and the adaptive mesh, which deals with the computative problems presented by barrier options. We discuss these two variants of the binomial procedure, and then look at the use of implied volatilities with binomial, trinomial, and adaptive mesh trees.