Pricing Parisian and ParAsian Options by a Vectorized Binomial or Trinomial Tree

ABSTRACT We extend binomial and trinomial trees to price European and American style Parisian and ParAsian options by keeping track of a vector of option prices under different scenarios at each tree node. We also incorporate the method for choosing the number of time‐steps that will yield more precise price estimates. The vectorized tree models can easily price exotic path‐dependent options such as American double barrier Parisian options and look‐back options, which present challenges to other existing methods.