Operator splitting methods for American option pricing
نویسندگان
چکیده
منابع مشابه
Operator Splitting Methods for Pricing American Options with Stochastic Volatility
Stochastic volatility models lead to more realistic option prices than the Black-Scholes model which uses a constant volatility. Based on such models a two-dimensional parabolic partial differential equation can derived for option prices. Due to the early exercise possibility of American option contracts the arising pricing problems are free boundary problems. In this paper we consider the nume...
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We consider the numerical pricing of American options under Heston’s stochastic volatility model. The price is given by a linear complementarity problem with a two-dimensional parabolic partial differential operator. We propose operator splitting methods for performing time stepping after a finite difference space discretization. The idea is to decouple the treatment of the early exercise const...
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Pricing American options using partial (integro-)differential equation based methods leads to linear complementarity problems (LCPs). The numerical solution of these problems resulting from the Black-Scholes model, Kou’s jumpdiffusion model, and Heston’s stochastic volatility model are considered. The finite difference discretization is described. The solutions of the discrete LCPs are approxim...
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متن کاملOperator Splitting Methods for American Options with Stochastic Volatility
Abstract. Option pricing models with a stochastic volatility are more realistic than the Black-Scholes model which uses a constant volatility. The prices of options based on such models can be obtained by solving a parabolic partial differential equation. Particularly, we consider the model presented by Heston. The variables in these problems are the time, the underlying asset value, and the vo...
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ژورنال
عنوان ژورنال: Applied Mathematics Letters
سال: 2004
ISSN: 0893-9659
DOI: 10.1016/j.aml.2004.06.010