10. (Numerical Efficiency) We compare the relative efficiency of the CRR and Tian (see Tian, 1993) methods...
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10. (Numerical Efficiency)
We compare the relative efficiency of the CRR and Tian (see Tian, 1993) methods applied to the ATM European case K = S = 60, T = 1, r = 006, sig. = 0.3 (put = 5.335399, c = 8.82952).
Answer the following questions:
a) Compare the approximate values for CRR and Tian models for NT = 100, 200, …, 1000. Which model is more accurate?
b) For a given tolerance level (for example, 5% precision level), determine how many steps are needed in the CRR and Tian models to achieve a given accuracy.
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