Pricing American options under stochastic volatility and stochastic interest rates
نویسندگان
چکیده
منابع مشابه
Pricing American Options under Stochastic Volatility
This paper presents an extension of McKean’s (1965) incomplete Fourier transform method to solve the two-factor partial differential equation for the price and early exercise surface of an American call option, in the case where the volatility of the underlying evolves randomly. The Heston (1993) square-root process is used for the volatility dynamics. The price is given by an integral equation...
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We consider American option pricing in the context of the widely adopted stochastic volatility model of Heston (1993). While estimating such model is challenging, we develop a pricing technique that is both efficiently accurate and robust with respect to estimates of spot and equilibrium volatilities. Our approach is based on a well-developed and efficient procedure for the constant volatility ...
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This paper presents a new numerical method for pricing American call options when the volatility of the price of the underlying stock is stochastic. By exploiting a log-linear relationship of the optimal exercise boundary with respect to volatility changes, we derive an integral representation of an American call price and the early exercise premium which holds under stochastic volatility. This...
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Five numerical methods for pricing American put options under Heston’s stochastic volatility model are described and compared. The option prices are obtained as the solution of a two-dimensional parabolic partial differential inequality. A finite difference discretization on nonuniform grids leading to linear complementarity problems with M -matrices is proposed. The projected SOR, a projected ...
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ژورنال
عنوان ژورنال: Journal of Financial Economics
سال: 2010
ISSN: 0304-405X
DOI: 10.1016/j.jfineco.2010.03.017