A Simple Numerical Method for Pricing an American Put Option
نویسندگان
چکیده
We present a simple numerical method to find the optimal exercise boundary in an American put option. We formulate an intermediate function with the fixed free boundary that has Lipschitz character near optimal exercise boundary. Employing it, we can easily determine the optimal exercise boundary by solving a quadratic equation in time-recursive way. We also present several numerical results which illustrate a comparison to other methods.
منابع مشابه
European and American put valuation via a high-order semi-discretization scheme
Put options are commonly used in the stock market to protect against the decline of the price of a stock below a specified price. On the other hand, finite difference approach is a well-known and well-resulted numerical scheme for financial differential equations. As such in this work, a new spatial discretization based on finite difference semi-discretization procedure with high order of accur...
متن کاملNumerical Solutions for Fractional Black-Scholes Option Pricing Equation
In this article we have applied a numerical finite difference method to solve the Black-Scholes European and American option pricing both presented by fractional differential equations in time and asset.
متن کاملAmerican Option Pricing of Future Contracts in an Effort to Investigate Trading Strategies; Evidence from North Sea Oil Exchange
In this paper, Black Scholes’s pricing model was developed to study American option on future contracts of Brent oil. The practical tests of the model show that market priced option contracts as future contracts less than what model did, which mostly represent option contracts with price rather than without price. Moreover, it suggests call option rather than put option. Using t hypothesis test...
متن کاملNumerical Solution of Pricing of European Put Option with Stochastic Volatility
In this paper, European option pricing with stochastic volatility forecasted by well known GARCH model is discussed in context of Indian financial market. The data of Reliance Ltd. stockprice from 3/01/2000 to 30/03/2009 is used and resulting partial differential equation is solved byCrank-Nicolson finite difference method for various interest rates and maturity in time. Thesensitivity measures...
متن کاملNumerical algorithm for discrete barrier option pricing in a Black-Scholes model with stationary process
In this article, we propose a numerical algorithm for computing price of discrete single and double barrier option under the emph{Black-Scholes} model. In virtue of some general transformations, the partial differential equations of option pricing in different monitoring dates are converted into simple diffusion equations. The present method is fast compared to alterna...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
- J. Applied Mathematics
دوره 2013 شماره
صفحات -
تاریخ انتشار 2013