Adaptive lattice methods for multi-asset models
Adaptive lattice methods are developed to compute the price of multivariate contingent claims. A simple coordinate representation is used to extend one dimensional lattice methods to multivariate asset models. Two algorithms are proposed, one performing several levels of refinement for a time interval [ T ? ? t , T ] and the other performing one level of refinement for ?% ? % of a given time domain [0,T] [ 0 , T ] , where T T is the time to maturity, ? t is the time step size and ?>0 ? > 0 is a constant. Numerical experiments are carried out for the European and American barrier-type options with one, two, or three underlying assets. In our numerical experiments, both adaptive algorithms improve efficiency over lattice methods with a uniform time step for the same level of accuracy.
lattice method multi-asset option pricing adaptive mesh refinement