Comparison of numerical and analytical approximations of the early exercise boundary of the American put option
AbstractIn this paper we present qualitative and quantitative comparison of various analytical and numerical approximation methods for calculating a position of the early exercise boundary of the American put option paying zero dividends. First we analyze their asymptotic behavior close to expiration. In the second part of the paper, we introduce a new numerical scheme for computing the entire early exercise boundary. The local iterative numerical scheme is based on a solution to a nonlinear integral equation. We compare numerical results obtained by the new method to those of the projected successive over relaxation method and the analytical approximation formula recently derived by Zhu.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1002.0979.
Date of creation: Feb 2010
Date of revision: Aug 2010
Publication status: Published in The ANZIAM Journal (2010), 51: 430-448
Contact details of provider:
Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- S\"oren Christensen, 2011. "A method for pricing American options using semi-infinite linear programming," Papers 1103.4483, arXiv.org, revised Jun 2011.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If references are entirely missing, you can add them using this form.