Accuracy and Reliability Considerations of Option Pricing Algorithms

On Accurate Trinomial GARCH Option Pricing Algorithms

The GARCH model has been successful in describing the volatility dynamics of asset return series. However, tree-based GARCH option pricing algorithms suffer from exponential running time, inaccuracy, or other problems. Lyuu and Wu proved that the trinomial-tree option pricing algorithms of Ritchken and Trevor (1999) and Cakici and Topyan (2000) explode exponentially when the number of partition...

Linear-time option pricing algorithms by combinatorics

Options are popular financial derivatives that play essential roles in financial markets. How to price them efficiently and accurately is very important both in theory and practice. Options are often priced by the lattice model. Although the prices computed by the lattice converge to the theoretical option value under the continuous-time model, they may converge slowly. Worse, for some options ...

Application of kernel-based stochastic gradient algorithms to option pricing

We present an algorithm for American option pricing based on stochastic approximation techniques. Option pricing algorithms generally involve some sort of discretization, either on the state space or on the underlying functional space. Our work, which is an application of a more general perturbed gradient algorithm introduced recently by the authors, consists in approximating the value function...

Invariant Option Pricing And

Part I proposes a numeraire-invariant option pricing framework. It defines an option, its price process, and such notions as option indistinguishability and equivalence, domination, payoff process, trigger option, and semipositive option. It develops some of their basic properties, including price transitivity law, indistinguishability results, convergence results, and, in relation to nonnegati...

Online Charging: Considerations for Accuracy, Reliability, and Visibility