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Recent Advances in Numerical Methods for Pricing Derivative Securities

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Author Info
Mark Broadie
Jérôme B. Detemple ()
Abstract

This paper provides a survey of recent numerical methods for pricing derivative securities. Methods for standard American options on a single underlying asset, barrier and lookback options and options on multiple assets are reviewed. Criteria for comparison of different approaches are discussed. New computational results are also presented.

Cet article présente une synthèse des méthodes numériques récentes utilisées pour l'évaluation des titres dérivés. Des méthodes qui s'appliquent aux options américaines standard sur actif sous-jacent unique, aux options avec barrières (barrier options) et rétroactives (lookback options), ainsi qu'aux options sur actifs multiples, sont passées en revue. Des critères de comparaison des diverses approches sont discutés. De nouveaux résultats numériques sont également présentés.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 96s-17.

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Date of creation: 01 May 1996
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Handle: RePEc:cir:cirwor:96s-17

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Keywords: Numerical Methods; American Options; Barrier Options; Lookback Options; Criteria for Comparison; Méthodes numériques; options américaines; options avec barrières; options rétroactives; critères de comparaison;

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  4. Li, Anlong & Ritchken, Peter & Sankarasubramanian, L, 1995. " Lattice Models for Pricing American Interest Rate Claims," Journal of Finance, American Finance Association, vol. 50(2), pages 719-37, June. [Downloadable!] (restricted)
  5. Schwartz, Eduardo S., 1977. "The valuation of warrants: Implementing a new approach," Journal of Financial Economics, Elsevier, vol. 4(1), pages 79-93, January. [Downloadable!] (restricted)
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  7. Roll, Richard, 1977. "An analytic valuation formula for unprotected American call options on stocks with known dividends," Journal of Financial Economics, Elsevier, vol. 5(2), pages 251-258, November. [Downloadable!] (restricted)
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  13. Kim, In Joon, 1990. "The Analytic Valuation of American Options," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(4), pages 547-72. [Downloadable!] (restricted)
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  19. Rendleman, Richard J, Jr & Bartter, Brit J, 1979. "Two-State Option Pricing," Journal of Finance, American Finance Association, vol. 34(5), pages 1093-1110, December. [Downloadable!] (restricted)
  20. Broadie, Mark & Detemple, Jerome, 1995. "American Capped Call Options on Dividend-Paying Assets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 8(1), pages 161-91. [Downloadable!] (restricted)
  21. Amin, Kaushik I., 1991. "On the Computation of Continuous Time Option Prices Using Discrete Approximations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(04), pages 477-495, December. [Downloadable!]
  22. Geske, Robert & Shastri, Kuldeep, 1985. "Valuation by Approximation: A Comparison of Alternative Option Valuation Techniques," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(01), pages 45-71, March. [Downloadable!]
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  24. Goldman, M Barry & Sosin, Howard B & Gatto, Mary Ann, 1979. "Path Dependent Options: "Buy at the Low, Sell at the High"," Journal of Finance, American Finance Association, vol. 34(5), pages 1111-27, December. [Downloadable!] (restricted)
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  29. Brennan, Michael J. & Schwartz, Eduardo S., 1978. "Finite Difference Methods and Jump Processes Arising in the Pricing of Contingent Claims: A Synthesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(03), pages 461-474, September. [Downloadable!]
  30. Nelson, Daniel B & Ramaswamy, Krishna, 1990. "Simple Binomial Processes as Diffusion Approximations in Financial Models," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(3), pages 393-430. [Downloadable!] (restricted)
  31. Trigeorgis, Lenos, 1991. "A Log-Transformed Binomial Numerical Analysis Method for Valuing Complex Multi-Option Investments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 309-326, September. [Downloadable!]
  32. Breen, Richard, 1991. "The Accelerated Binomial Option Pricing Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(02), pages 153-164, June. [Downloadable!]
  33. Omberg, Edward, 1988. "Efficient Discrete Time Jump Process Models in Option Pricing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(02), pages 161-174, June. [Downloadable!]
  34. Madan, Dilip B & Milne, Frank & Shefrin, Hersh, 1989. "The Multinomial Option Pricing Model and Its Brownian and Poisson Limits," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 2(2), pages 251-65. [Downloadable!] (restricted)
    Other versions:
  35. Barone-Adesi, Giovanni & Whaley, Robert E, 1987. " Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-20, June. [Downloadable!] (restricted)
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