Related papers: The Binomial Tree Method and Explicit Difference S…
We present a parallel algorithm that computes the ask and bid prices of an American option when proportional transaction costs apply to the trading of the underlying asset. The algorithm computes the prices on recombining binomial trees,…
American put options are among the most frequently traded single stock options, and their calibration is computationally challenging since no closed-form expression is available. Due to the higher flexibility in comparison to European…
In this paper we investigate a nonlinear generalization of the Black-Scholes equation for pricing American style call options in which the volatility term may depend on the underlying asset price and the Gamma of the option. We propose a…
We present an adaptive approach for valuing the European call option on assets with stochastic volatility. The essential feature of the method is a reduction of uncertainty in latent volatility due to a Bayesian learning procedure. Starting…
Using a fast numerical technique, we investigate a large database of investor suboptimal non-exercise of short maturity American call options on dividend-paying stocks listed on the Dow Jones. The correct modelling of the discrete dividend…
Tree ensemble models such as random forests and boosted trees are among the most widely used and practically successful predictive models in applied machine learning and business analytics. Although such models have been used to make…
We propose a machine learning-based extension of the classical binomial option pricing model that incorporates key market microstructure effects. Traditional models assume frictionless markets, overlooking empirical features such as bid-ask…
This paper investigates analytic properties of American option prices under the finite moment log-stable (FMLS) model. Under this model the price of American options is characterised by the free boundary problem of a fractional partial…
We extend the classical Cox-Ross-Rubinstein binomial model in two ways. We first develop a binomial model with time-dependent parameters that equate all moments of the pricing tree increments with the corresponding moments of the increments…
In this paper we propose an efficient method to compute the price of multi-asset American options, based on Machine Learning, Monte Carlo simulations and variance reduction technique. Specifically, the options we consider are written on a…
This paper proposes the Exact Terminal Condition Neural Network (ETCNN), a deep learning framework for accurately pricing American options by solving the Black-Scholes-Merton (BSM) equations. The ETCNN incorporates carefully designed…
This study investigates enhancing option pricing by extending the Black-Scholes model to include stochastic volatility and interest rate variability within the Partial Differential Equation (PDE). The PDE is solved using the finite…
We reconsider the valuation of barrier options by means of binomial trees from a "forward looking" prospective rather than the more conventional "backward induction" one used by standard approaches. This reformulation allows us to write…
We introduce a new method to price American options based on Chebyshev interpolation. In each step of a dynamic programming time-stepping we approximate the value function with Chebyshev polynomials. The key advantage of this approach is…
In this paper we propose two efficient techniques which allow one to compute the price of American basket options. In particular, we consider a basket of assets that follow a multi-dimensional Black-Scholes dynamics. The proposed…
We extend the viscosity solution characterization proved in [5] for call/put American option prices to the case of a general payoff function in a multi-dimensional setting: the price satisfies a semilinear re-action/diffusion type equation.…
The aim of this study was to develop methods for evaluating the American-style option prices when the volatility of the underlying asset is described by a stochastic process. As part of this problem were developed techniques for modeling…
It is shown how to obtain accurate values for American options using Monte Carlo simulation. The main feature of the novel algorithm consists of tracking the boundary between exercise and hold regions via optimization of a certain payoff…
Earned duration management (EDM) is a methodology for project schedule management (PSM) that can be considered an alternative to earned value management (EVM). EDM provides an estimation of deviations in schedule and a final project…
We consider the problem of valuation of American options written on dividend-paying assets whose price dynamics follows a multidimensional exponential Levy model. We carefully examine the relation between the option prices, related partial…