Computational Study of Pricing American Options Using a New Dynamic Programming Approach

The organization of this project report is as following: Section 2 is a literature review on various approaches of pricing options (mostly American options) with transactions costs; Section 3 describes the dynamic programming model developed by Dr. Edirisinghe as an efficient approach to study the option-pricing problem and discusses several extensions to the basic DP model; In Section 4, computational experiments on the Java implementation of the dynamic programming model (with extensions) are described, results are presented and analyses are made; Section 5 concludes this project report. Implementation details can be found in the appendices.