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On the methods of pricing American options: case study
Date
2018-01-01
Author
AYDOGAN, Burcu
Aksoy, Umit
Uğur, Ömür
Metadata
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Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License
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In this study, a comparative analysis of numerical and approximation methods for pricing American options is performed. Binomial and finite difference approximations are discussed; furthermore, Roll-Geske-Whaley, Barone-Adesi and Whaley and Bjerksund-Stensland analytical approximations as well as the least-squares Monte Carlo method of Longstaff and Schwartz are presented. Applicability and efficiency in almost all circumstances, numerical solutions of the corresponding free boundary problem is emphasized. Methods used in pricing American options are also compared on dividend and non-dividend paying assets; and their pros and cons are discussed along with numerical experiments.
Subject Keywords
American Options
,
Numerical Methods
,
Analytical Approximations
,
Bounds
URI
https://hdl.handle.net/11511/32580
Journal
ANNALS OF OPERATIONS RESEARCH
DOI
https://doi.org/10.1007/s10479-016-2267-4
Collections
Graduate School of Applied Mathematics, Article
Citation Formats
IEEE
ACM
APA
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MLA
BibTeX
B. AYDOGAN, U. Aksoy, and Ö. Uğur, “On the methods of pricing American options: case study,”
ANNALS OF OPERATIONS RESEARCH
, vol. 260, pp. 79–94, 2018, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/32580.