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Variational inequalities and the pricing of American options

Author

Listed:
  • Patrick Jaillet

    (Laboratory for Information and Decision Systems, Massachusetts Institute of Technology - Laboratory for Information and Decision Systems - Laboratory for Information and Decision Systems - Department of Electrical Engineering and Computer Science - Department of Electrical Engineering and Computer Science)

  • Damien Lamberton

    (LAMA - Laboratoire d'Analyse et de Mathématiques Appliquées - UPEM - Université Paris-Est Marne-la-Vallée - BEZOUT - Fédération de Recherche Bézout - CNRS - Centre National de la Recherche Scientifique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - CNRS - Centre National de la Recherche Scientifique)

  • Bernard Lapeyre

    (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - ENPC - École des Ponts ParisTech)

Abstract

This paper is devoted to the derivation of some regularity properties of pricing functions for American options and to the discussion of numerical methods, based on the Bensoussan-Lions methods of variational inequalities. In particular, we provide a complete justification of the so-called BrennanSchwartz algorithm for the valuation of American put options.

Suggested Citation

  • Patrick Jaillet & Damien Lamberton & Bernard Lapeyre, 1990. "Variational inequalities and the pricing of American options," Post-Print hal-01667008, HAL.
    • Handle: RePEc:hal:journl:hal-01667008
    DOI: 10.1007/BF00047211
    as

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