To obtain a consistent binomial scheme for the floating strike lookback put option, we derive the binomial
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To obtain a consistent binomial scheme for the floating strike lookback put option, we derive the binomial discretization at j = 0 using the finite volume approach. First, we integrate the governing differential equation from x = 0 to x = Δx/2 to obtain
Suppose we adopt the following approximations:
Show that the binomial approximation at j = 0 is given by
Examine the consistency of the above binomial approximation.
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