A Simple Numerical Method for Pricing an American Put Option
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...
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| Format: | Article |
| Language: | English |
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Wiley
2013-01-01
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| Series: | Journal of Applied Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2013/128025 |
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| _version_ | 1832551066071203840 |
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| author | Beom Jin Kim Yong-Ki Ma Hi Jun Choe |
| author_facet | Beom Jin Kim Yong-Ki Ma Hi Jun Choe |
| author_sort | Beom Jin Kim |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-a5e4d29705cf4802a6cdc4fc7145efcb |
| institution | Kabale University |
| issn | 1110-757X 1687-0042 |
| language | English |
| publishDate | 2013-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Journal of Applied Mathematics |
| spelling | doaj-art-a5e4d29705cf4802a6cdc4fc7145efcb2025-02-03T06:05:05ZengWileyJournal of Applied Mathematics1110-757X1687-00422013-01-01201310.1155/2013/128025128025A Simple Numerical Method for Pricing an American Put OptionBeom Jin Kim0Yong-Ki Ma1Hi Jun Choe2Department of Mathematics, Yonsei University, Seoul 120-749, Republic of KoreaDepartment of Applied Mathematics, Kongju National University, Chungcheongnam-Do, Gongju 314-701, Republic of KoreaDepartment of Mathematics, Yonsei University, Seoul 120-749, Republic of KoreaWe 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.http://dx.doi.org/10.1155/2013/128025 |
| spellingShingle | Beom Jin Kim Yong-Ki Ma Hi Jun Choe A Simple Numerical Method for Pricing an American Put Option Journal of Applied Mathematics |
| title | A Simple Numerical Method for Pricing an American Put Option |
| title_full | A Simple Numerical Method for Pricing an American Put Option |
| title_fullStr | A Simple Numerical Method for Pricing an American Put Option |
| title_full_unstemmed | A Simple Numerical Method for Pricing an American Put Option |
| title_short | A Simple Numerical Method for Pricing an American Put Option |
| title_sort | simple numerical method for pricing an american put option |
| url | http://dx.doi.org/10.1155/2013/128025 |
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