Black & Scholes (1973) developed a model for pricing European call options on assets that do not pay dividends. Merton (1973) extended it to include assets that pay dividends. Many other developments have been made after that. Perhaps one of the most important work in this area was proposed by Cox, Ross & Rubinstein (1979), where the stochastic process for the price of the underlying asset proposed by Black & Scholes was approximated by a discrete time binomial process. The method proposed by Cox, Ross & Rubinstein became very popular because of its simplicity and easy implementation. But the convergence of the binomial model is weak and oscillatory. This work pretends to explain the main solutions found in the literature to accelerate convergence.
engineering economics; binomial option pricing; oscillatory convergence
