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The rate of convergence of option prices when general martingale discrete-time scheme approximates the Black-Scholes model

Yuliya Mishura — 2015

Banach Center Publications

We take the martingale central limit theorem that was established, together with the rate of convergence, by Liptser and Shiryaev, and adapt it to the multiplicative scheme of financial markets with discrete time that converge to the standard Black-Scholes model. The rate of convergence of put and call option prices is shown to be bounded by n - 1 / 8 . To improve the rate of convergence, we suppose that the increments are independent and identically distributed (but without binomial or similar restrictions...

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