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

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  • 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.

Suggested Citation

  • Bunch, David S & Johnson, Herb, 1992. "A Simple and Numerically Efficient Valuation Method for American Puts Using a Modified Geske-Johnson Approach," Journal of Finance, American Finance Association, vol. 47(2), pages 809-816, June.
    • Handle: RePEc:bla:jfinan:v:47:y:1992:i:2:p:809-16
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