Convergence of Optimal Expected Utility for a Sequence of Binomial Models
| Autor: | Hubalek, Friedrich, Schachermayer, Walter |
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| Rok vydání: | 2020 |
| Předmět: | |
| Druh dokumentu: | Working Paper |
| Popis: | We analyze the convergence of expected utility under the approximation of the Black-Scholes model by binomial models. In a recent paper by D. Kreps and W. Schachermayer a surprising and somewhat counter-intuitive example was given: such a convergence may, in general, fail to hold true. This counterexample is based on a binomial model where the i.i.d. logarithmic one-step increments have strictly positive third moments. This is the case, when the up-tick of the log-price is larger than the down-tick. In the paper by D. Kreps and W. Schachermayer it was left as an open question how things behave in the case when the down-tick is larger than the up-tick and -- most importantly -- in the case of the symmetric binomial model where the up-tick equals the down-tick. Is there a general positive result of convergence of expected utility in this setting? In the present note we provide a positive answer to this question. It is based on some rather fine estimates of the convergence arising in the Central Limit Theorem. Comment: 10 pages |
| Databáze: | arXiv |
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