A Modified Binomial Tree Method for Currency Lookback Options

The binomial tree method is the most popular numerical approach to pricing options.However,for currency lookback options,this method is not consistent with the corresponding continuousmodels,which leads to slow speed of convergence.On the basis of the PDE approach,we developa consistent numerical scheme called the modified binomial tree method.It possesses one order ofaccuracy and its efficiency is demonstrated by numerical experiments.The convergence proofs are alsoproduced in terms of numerical analysis and the notion of viscosity solution.