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Author : Mark Nathan Broadie
Publisher :
ISBN 13 :
Total Pages : 24 pages
Book Rating : 4.:/5 (35 download)
Download or read book Bounds and Approximations for American Option Values written by Mark Nathan Broadie and published by . This book was released on 1993 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jerome Detemple
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book American Option Valuation written by Jerome Detemple and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop lower and upper bounds on the prices of American call and put options written on a dividend paying asset. We provide two option price approximations, one based on the lower bound (term LBA) and one based on both bounds (termed LUBA). The LUBA approximation has an average accuracy comparable to a 1000-step binomial tree with a computation speed comparable to a 50-step binomial tree. We introduce a modification of the binomial method (termed BBSR) which is very simple to implement and performs remarkably well. We also conduct a careful large-scale evaluation of many recent methods for computing American option prices.
Author : Leonid Kogan
Publisher : Forgotten Books
ISBN 13 : 9780666532459
Total Pages : 82 pages
Book Rating : 4.5/5 (324 download)
Download or read book Pricing American Options written by Leonid Kogan and published by Forgotten Books. This book was released on 2018-02-27 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excerpt from Pricing American Options: A Duality Approach The main practical contribution of this paper is a general algorithm for constructing upper and lower bounds on the true price of the option using any approximation to the option price. We show that our bounds are tight, so that if the initial approximation is close to the true price of the option, the bounds are also guaranteed to be close. In addition, we explicitly characterize the worst-case performance of the pricing bounds. The computation of the lower bound is straightforward and relies on simulating the suboptimal exercise strategy implied by the approximate option price. The upper bound is obtained by simulating a different stochastic process that is determined by choosing an appropriate supermartingale. We justify this procedure by representing the American option price as a solution of a dual minimization problem, which is the main theoretical result of this paper. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Author : Mo Chaudhury
Publisher :
ISBN 13 :
Total Pages : 41 pages
Book Rating : 4.:/5 (129 download)
Download or read book Upper Bounds for American Options written by Mo Chaudhury and published by . This book was released on 2003 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a fuller characterization of the analytical upper bounds for American options than has been available to date. We establish properties required of analytical upper bounds without any direct reliance on the exercise boundary. A class of generalized European claims on the same underlying asset is then proposed as upper bounds. This set contains the existing closed form bounds of Margrabe (1978) and Chen and Yeh (2002) as special cases and allows randomization of the maturity payoff. Due to the European nature of the bounds, across-strike arbitrage conditions on option prices seem to carry over to the bounds. Among other things, European option spreads may be viewed as ratio positions on the early exercise option. To tighten the upper bound, we propose a quasi-bound that holds as an upper bound for most situations of interest and seems to offer considerable improvement over the currently available closed form bounds. As an approximation, the discounted value of Chen and Yeh's (2001) bound holds some promise. We also discuss implications for parametric and nonparametric empirical option pricing. Sample option quotes for the European (XEO) and the American (OEX) options on the Samp;P 100 Index appear well behaved with respect to the upper bound properties but the bid-ask spreads are too wide to permit a synthetic short position in the early exercise option.
Author : Detemple, Jérôme
Publisher : Montréal : CIRANO
ISBN 13 :
Total Pages : 30 pages
Book Rating : 4.:/5 (358 download)
Download or read book American Option Valuation : New Bounds, Approximations, and a Comparison of Existing Methods written by Detemple, Jérôme and published by Montréal : CIRANO. This book was released on 1994 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Alessandro Sbuelz
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book Analytic American Option Pricing written by Alessandro Sbuelz and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In a Black and Scholes (1973) world I study the pricing performance of a closed-form lower bound to American option values based on an exercise strategy corresponding to a flat exercise boundary. The lower bound has a simple two-step implementation akin to the Barone-Adesi and Whaley (1987) formula and shows superior pricing performance in the Out-of-The-Money region and for long maturities.
Author : Carl Chiarella
Publisher : World Scientific
ISBN 13 : 9814452629
Total Pages : 223 pages
Book Rating : 4.8/5 (144 download)
Download or read book The Numerical Solution of the American Option Pricing Problem written by Carl Chiarella and published by World Scientific. This book was released on 2014-10-14 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt: The early exercise opportunity of an American option makes it challenging to price and an array of approaches have been proposed in the vast literature on this topic. In The Numerical Solution of the American Option Pricing Problem, Carl Chiarella, Boda Kang and Gunter Meyer focus on two numerical approaches that have proved useful for finding all prices, hedge ratios and early exercise boundaries of an American option. One is a finite difference approach which is based on the numerical solution of the partial differential equations with the free boundary problem arising in American option pricing, including the method of lines, the component wise splitting and the finite difference with PSOR. The other approach is the integral transform approach which includes Fourier or Fourier Cosine transforms. Written in a concise and systematic manner, Chiarella, Kang and Meyer explain and demonstrate the advantages and limitations of each of them based on their and their co-workers'' experiences with these approaches over the years. Contents: Introduction; The Merton and Heston Model for a Call; American Call Options under Jump-Diffusion Processes; American Option Prices under Stochastic Volatility and Jump-Diffusion Dynamics OCo The Transform Approach; Representation and Numerical Approximation of American Option Prices under Heston; Fourier Cosine Expansion Approach; A Numerical Approach to Pricing American Call Options under SVJD; Conclusion; Bibliography; Index; About the Authors. Readership: Post-graduates/ Researchers in finance and applied mathematics with interest in numerical methods for American option pricing; mathematicians/physicists doing applied research in option pricing. Key Features: Complete discussion of different numerical methods for American options; Able to handle stochastic volatility and/or jump diffusion dynamics; Able to produce hedge ratios efficiently and accurately"
Author : Andreas Andrikopoulos
Publisher :
ISBN 13 :
Total Pages : 17 pages
Book Rating : 4.:/5 (129 download)
Download or read book Analytical Approximations to the Valuation of American Options written by Andreas Andrikopoulos and published by . This book was released on 2007 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: The quadratic approximation to the valuation of american options on stocks is revisited, constructing a pricing approach based on the fact that the early exercise policy should be chosen to maximize the value of the option. At the first part of the paper, we apply this approach (boundary-optimality) in the setting of the pricing model suggested in Barone-Adesi and Whaley (1987). We enrich their original valuation setting with an additional parameter, computed with the help of a boundary-optimality boundary condition. This approach enhances the accuracy performance of the Barone-Adesi and Whaley (1987) approximation. In the second part of the paper we introduce a novel approximation approach, where option value is the product of two functions, one of the being a function of time and the other one being a function of the stock price. Applying the principle that the early exercise policy should maximize option value, this alternative option pricing technique provides accurate results for american call and put options.
Author : In Joon Kim
Publisher :
ISBN 13 :
Total Pages : 35 pages
Book Rating : 4.:/5 (129 download)
Download or read book New Bounds on American Option Prices written by In Joon Kim and published by . This book was released on 2007 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this article, we develop new upper and lower bounds on American option prices which improve the bounds by Broadie and Detemple. The main idea is the consideration of doubly capped call options which have two cap prices. We present a new option price approximation based on the two upper bounds. On average, our upper bound extrapolation (named UBE) has an average accuracy better than a 1,000 time-step binomial tree with a computation speed comparable to a 100 time-step binomial tree. We also provide a new method of approximating the optimal exercise boundaries of American options.
Author : L. C. G. Rogers
Publisher : Cambridge University Press
ISBN 13 : 9780521573542
Total Pages : 348 pages
Book Rating : 4.5/5 (735 download)
Download or read book Numerical Methods in Finance written by L. C. G. Rogers and published by Cambridge University Press. This book was released on 1997-06-26 with total page 348 pages. Available in PDF, EPUB and Kindle. Book excerpt: Numerical Methods in Finance describes a wide variety of numerical methods used in financial analysis.
Author : Jerome Detemple
Publisher : CRC Press
ISBN 13 : 1420034863
Total Pages : 247 pages
Book Rating : 4.4/5 (2 download)
Download or read book American-Style Derivatives written by Jerome Detemple and published by CRC Press. This book was released on 2005-12-09 with total page 247 pages. Available in PDF, EPUB and Kindle. Book excerpt: Focusing on recent developments in the field, American-Style Derivatives provides an extensive treatment of option pricing with emphasis on the valuation of American options on dividend-paying assets. This book reviews valuation principles for European contingent claims and extends the analysis to American contingent claims. It presents basic valuation principles for American options including barrier, capped, and multi-asset options. It also reviews numerical methods for option pricing and compares their relative performance. Ideal for students and researchers in quantitative finance, this material is accessible to those with a background in stochastic processes or derivative securities.
Author : Leonid Kogan
Publisher :
ISBN 13 :
Total Pages : 76 pages
Book Rating : 4.:/5 (58 download)
Download or read book Pricing American Options written by Leonid Kogan and published by . This book was released on 2001 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a new method for pricing American options. The main practical contribution of this paper is a general algorithm for constructing upper and lower bounds on the true price of the option using any approximation to the option price. We show that our bounds are tight, so that if the initial approximation is close to the true price of the option, the bounds are also guaranteed to be close. We also explicitly characterize the worst-case performance of the pricing bounds. The computation of the lower bound is straightforward and relies on simulating the suboptimal exercise strategy implied by the approximate option price. The upper bound is also computed using Monte Carlo simulation. This is made feasible by the representation of the American option price as a solution of a properly defined dual minimization problem, which is the main theoretical result of this paper. Our algorithm proves to be accurate on a set of sample problems where we price call options on the maximum and the geometric mean of a collection of stocks. These numerical results suggest that our pricing method can be successfully applied to problems of practical interest. Keywords: Asset pricing, dynamic programming, simulation, American option, optimal stopping, duality.
Author : Giovanni Barone Adesi
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.:/5 (287 download)
Download or read book Efficient Analytic Approximation of American Option Values written by Giovanni Barone Adesi and published by . This book was released on 1986 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Peter Carr
Publisher :
ISBN 13 :
Total Pages : 7 pages
Book Rating : 4.:/5 (419 download)
Download or read book On Approximations for the Values of American Options written by Peter Carr and published by . This book was released on 1994 with total page 7 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : John Hull
Publisher : Pearson Higher Education AU
ISBN 13 : 1486013686
Total Pages : 577 pages
Book Rating : 4.4/5 (86 download)
Download or read book Fundamentals of Futures and options markets written by John Hull and published by Pearson Higher Education AU. This book was released on 2013-09-12 with total page 577 pages. Available in PDF, EPUB and Kindle. Book excerpt: This first Australasian edition of Hull’s bestselling Fundamentals of Futures and Options Markets was adapted for the Australian market by a local team of respected academics. Important local content distinguishes the Australasian edition from the US edition, including the unique financial instruments commonly traded on the Australian securities and derivatives markets and their surrounding conventions. In addition, the inclusion of Australasian and international business examples makes this text the most relevant and useful resource available to Finance students today. Hull presents an accessible and student-friendly overview of the topic without the use of calculus and is ideal for those with a limited background in mathematics. Packed with numerical examples and accounts of real-life situations, this text effectively guides students through the material while helping them prepare for the working world. For undergraduate and post-graduate courses in derivatives, options and futures, financial engineering, financial mathematics, and risk management.
Author : Robert E. Whaley
Publisher : John Wiley & Sons
ISBN 13 : 0470086386
Total Pages : 962 pages
Book Rating : 4.4/5 (7 download)
Download or read book Derivatives written by Robert E. Whaley and published by John Wiley & Sons. This book was released on 2007-02-26 with total page 962 pages. Available in PDF, EPUB and Kindle. Book excerpt: Robert Whaley has more than twenty-five years of experience in the world of finance, and with this book he shares his hard-won knowledge in the field of derivatives with you. Divided into ten information-packed parts, Derivatives shows you how this financial tool can be used in practice to create risk management, valuation, and investment solutions that are appropriate for a variety of market situations.
Author : Andreas Andrikopoulos
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)
Download or read book The Quadratic Approximation for the Value of American Options written by Andreas Andrikopoulos and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The valuation of put options with early-exercise opportunities constitutes a major challenge of asset pricing. The option-theoretic response to this challenge relies on the estimation of the optimal exercise boundary. This paper introduces a novel quadratic approximation for the valuation of American options on common stock. The paper's contribution lies in the tradition of semi-analytical approximation of American put options, which was put forward in Barone-Adesi and Whaley (1987). Assuming that the interest rate and the volatility are constant, the early-exercise premium is modeled as a product of two functions, one being a function of time and the other being a function of the stock price. The numerical results demonstrate the accuracy of the method, over competing alternatives such as the Barone-Adesi and Whaley (1987) algorithm.
