Related papers: Pricing American options under negative rates
Options on baskets (linear combinations) of assets are notoriously challenging to price using even the simplest log-normal continuous-time stochastic models for the individual assets. The paper [5] gives a closed form approximation formula…
In the paper we consider the problem of valuation of American options written on dividend-paying assets whose price dynamics follow the classical multidimensional Black and Scholes model. We provide a general early exercise premium…
This paper studies the valuation of a class of default swaps with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection…
We develop a practical framework for identifying and quantifying the hidden layers of risks and optionality embedded in American options by introducing stochasticity into one or more of their underlying determinants. The heuristic approach…
In this paper we present a MATLAB version of a non-standard finite difference scheme for the numerical solution of the perpetual American put option models of financial markets. These models can be derived from the celebrated Black-Scholes…
In this paper, we demonstrate that policy iteration, introduced in the context of HJB equations in [Forsyth & Labahn, 2007], is an extremely simple generic algorithm for solving linear complementarity problems resulting from the finite…
We derive the explicit price of the perpetual American put option cancelled at the last passage time of the underlying above some fixed level. We assume the asset process is governed by a geometric spectrally negative L\'evy process. We…
We present a numerical approach for solving the free boundary problem for the Black-Scholes equation for pricing American style of floating strike Asian options. A fixed domain transformation of the free boundary problem into a parabolic…
American options are financial instruments that can be exercised at any time before expiration. In this paper we study the problem of pricing this kind of derivatives within a framework in which some of the properties --volatility and…
Absolute value linear programming problems is quite a new area of optimization problems, involving linear functions and absolute values in the description of the model. In this paper, we consider interval uncertainty of the input…
We consider the problem of computing upper and lower bounds on the price of a European basket call option, given prices on other similar baskets. Although this problem is very hard to solve exactly in the general case, we show that in some…
In this article we propose a novel approach to reduce the computational complexity of various approximation methods for pricing discrete time American options. Given a sequence of continuation values estimates corresponding to different…
In this paper we provide a theoretical analysis of Variable Annuities with a focus on the holder's right to an early termination of the contract. We obtain a rigorous pricing formula and the optimal exercise boundary for the surrender…
We derive closed-form solutions to the optimal stopping problems related to the pricing of perpetual American standard and lookback put and call options in the extensions of the Black-Merton-Scholes model with progressively enlarged…
This paper studies the parabolic free boundary problem arising from pricing American-style put options on an asset whose index follows a geometric Brownian motion process. The contribution is to propose a condition for that the early…
The problem of pricing Bermudan options using Monte Carlo and a nonparametric regression is considered. We derive optimal non-asymptotic bounds for a lower biased estimate based on the suboptimal stopping rule constructed using some…
We study the optimal stopping problem of pricing an American Put option on a Zero Coupon Bond (ZCB) in the Musiela's parametrization of the Heath-Jarrow-Morton (HJM) model for forward interest rates. First we show regularity properties of…
An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and…
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…
This article combines various methods of analysis to draw a comprehensive picture of penalty approximations to the value, hedge ratio, and optimal exercise strategy of American options. While convergence of the penalised solution for…