The Annals of Applied Probability

Error estimates for binomial approximations of game options

Yuri Kifer

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We justify and give error estimates for binomial approximations of game (Israeli) options in the Black–Scholes market with Lipschitz continuous path dependent payoffs which are new also for usual American style options. We show also that rational (optimal) exercise times and hedging self-financing portfolios of binomial approximations yield for game options in the Black–Scholes market “nearly” rational exercise times and “nearly” hedging self-financing portfolios with small average shortfalls and initial capitals close to fair prices of the options. The estimates rely on strong invariance principle type approximations via the Skorokhod embedding.

Article information

Ann. Appl. Probab., Volume 16, Number 2 (2006), 984-1033.

First available in Project Euclid: 29 June 2006

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Digital Object Identifier

Mathematical Reviews number (MathSciNet)

Zentralblatt MATH identifier

Primary: 91B28
Secondary: 60F15: Strong theorems 91A05: 2-person games

Game options Dynkin games complete markets binomial approximation Skorokhod embedding


Kifer, Yuri. Error estimates for binomial approximations of game options. Ann. Appl. Probab. 16 (2006), no. 2, 984--1033. doi:10.1214/105051606000000088.

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