Lattices in options pricing
In binomial trees, each node recombines at every alternative node. In trinomial trees, each node recombines at every other node. This property of recombining trees can also be represented as lattices to help you save memory without recomputing and storing recombined nodes.
Using a binomial lattice
We will create a binomial lattice from the binomial CRR tree since, at every alternate up and down nodes, the prices recombine to the same probability of . In the following figure, and recombine with . The tree can now be represented ...