American Option Approximations
نویسنده
چکیده
Though an analytical solution for the value of a European option in the context of the Black-Scholes model is more than 30 years old, a corresponding solution for American options has troubled practitioners and academics alike. In 2006, an analytical solution was presented for puts, however, this solution is computationally complex, requiring symbolic algebra packages, that make it impractical for most real world applications. Many approximations exist for both the critical stock price, the price at which it is optimal to exercise a put early, and the value of an American put option. Unfortunately, the literature on these approximations provides little guidance considering relative success of these methods.
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