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A Simple and Numerically Efficient Valuation Method for American Puts Using a Modified Geske-Johnson Approach

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Author Info
 Bunch, David S
Johnson, Herb
Abstract

R. Geske and H. E. Johnson (1984) develop an equation for the American put price and obtain accurate prices using a method requiring quadrivariate normal integrals evaluated over an interval containing four equally spaced exercise points. The authors show that a modification of their method, which uses optimal placement of exercise points, yields, in most cases, accurate values using nothing more than bivariate normals. In the more difficult (deep-in-the-money) cases, trivariate normals suffice. Copyright 1992 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 47 (1992)
Issue (Month): 2 (June)
Pages: 809-16
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Handle: RePEc:bla:jfinan:v:47:y:1992:i:2:p:809-16

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