English, Article edition: CALCULATING THE EARLY EXERCISE BOUNDARY OF AMERICAN PUT OPTIONS WITH AN APPROXIMATION FORMULA SONG-PING ZHU; ZHI-WEI HE

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Physical Description
  • article
Language
  • English

Edition details

Title
  • CALCULATING THE EARLY EXERCISE BOUNDARY OF AMERICAN PUT OPTIONS WITH AN APPROXIMATION FORMULA
Author
  • SONG-PING ZHU
  • ZHI-WEI HE
Physical Description
  • article
Notes
  • Accurately as well as efficiently calculating the early exercise boundary is the key to the highly nonlinear problem of pricing American options. Many analytical approximations have been proposed in the past, aiming at improving the computational efficiency and the easiness of using the formula, while maintaining a reasonable numerical accuracy at the same time. In this paper, we shall present an approximation formula based on Bunch and Johnson's work [6]. After clearly pointing out some errors in Bunch and Johnson's paper [6], we will propose an improved approximation formula that can significantly enhance the computational accuracy, particularly for options of long lifetime.
  • Optimal exercise boundary, American put options, analytical approximations
  • RePEc:wsi:ijtafx:v:10:y:2007:i:07:p:1203-1227
Language
  • English
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