This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Tradable Schemes

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Jiri Hoogland (CWI, Amsterdam)
Dimitri Neumann (CWI, Amsterdam)

Additional information is available for the following registered author(s):

Abstract

In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite difference scheme to exact solutions of the pricing PDE. This can be done in a very elegant way, due to the fact that in our tradable based formulation there appear no drift terms in the PDE. We construct a mixed scheme based on this idea and apply it to price various types of arithmetic Asian options, as well as plain vanilla options (both european and american style) on stocks paying known cash dividends. We find prices which are accurate to ~0.1% in about 10ms on a Pentium 233MHz computer and to ~0.001% in a second. The scheme can also be used for market conform pricing, by fitting it to observed option prices.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://129.3.20.41/eps/fin/papers/0105/0105003.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by EconWPA in its series Finance with number 0105003.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 12 pages
Date of creation: 21 May 2001
Date of revision:
Handle: RePEc:wpa:wuwpfi:0105003

Note: Type of Document - Acrobat PDF; prepared on NT/LaTeX; to print on PostScript; pages: 12 ; figures: None
Contact details of provider:
Web page: http://129.3.20.41

For technical questions regarding this item, or to correct its listing, contact: (EconWPA).

Related research
Keywords: contingent claim pricing; numeric methods; asian options; cash dividend; partial differential equation;

Other versions of this item:

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Jiri Hoogland & Dimitri Neumann, 2001. "Asians and cash dividends: Exploiting symmetries in pricing theory," Finance 0105002, EconWPA. [Downloadable!]
  2. Jiri Hoogland & Dimitri Neumann, 2000. "Asians and cash dividends: Exploiting symmetries in pricing theory," Quantitative Finance Papers cond-mat/0006133, arXiv.org. [Downloadable!]
  3. Jin E. Zhang, 1999. "Arithmetic Asian Options with Continuous Sampling," Finance Working Papers 231, East Asian Bureau of Economic Research. [Downloadable!]
  4. Kemna, A. G. Z. & Vorst, A. C. F., 1990. "A pricing method for options based on average asset values," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 113-129, March. [Downloadable!] (restricted)
  5. Jiri Hoogland & Dimitri Neumann, 1999. "Scale invariance and contingent claim pricing," Finance 9907002, EconWPA. [Downloadable!]
  6. Turnbull, Stuart M. & Wakeman, Lee Macdonald, 1991. "A Quick Algorithm for Pricing European Average Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 377-389, September. [Downloadable!]
  7. Jiri Hoogland & Dimitri Neumann, 1999. "Scale invariance and contingent claim pricing II: Path-dependent contingent claims," Finance 9907003, EconWPA. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jiri Hoogland & Dimitri Neumann & Michel Vellekoop, 2002. "Symmetries in Jump-Diffusion Models with Applications in Option Pricing and Credit Risk," Finance 0203001, EconWPA. [Downloadable!]
Statistics
Access and download statistics

Did you know? All the bibliographic data shown here has been contributed by volunteers, thereby helping to keep this service free.

This page was last updated on 2009-10-20.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.