Reduced Order Models for Pricing American Options under Stochastic Volatility and Jump-diffusion Models
نویسندگان
چکیده
منابع مشابه
Reduced order models for pricing European and American options under stochastic volatility and jump-diffusion models
European options can be priced by solving parabolic partial(-integro) differential equations under stochastic volatility and jump-diffusion models like Heston, Merton, and Bates models. American option prices can be obtained by solving linear complementary problems (LCPs) with the same operators. A finite difference discretization leads to a so-called full order model (FOM). Reduced order model...
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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 propose an iterative method for pricing American options under jumpdiffusion models. A finite difference discretization is performed on the partial integro-differential equation, and the American option pricing problem is formulated as a linear complementarity problem (LCP). Jump-diffusion models include an integral term, which causes the resulting system to be dense. We propose an iteration...
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ژورنال
عنوان ژورنال: Procedia Computer Science
سال: 2016
ISSN: 1877-0509
DOI: 10.1016/j.procs.2016.05.360