IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

A matched asymptotic expansions approach to continuity corrections for discretely sampled options. Part 2: Bermudan options

Listed author(s):
  • Sam Howison
Registered author(s):

    We discuss the `continuity correction' that should be applied to connect the prices of discretely sampled American put options (i.e.Bermudan options) and their continuously-sampled equivalents. Using a matched asymptotic expansions approach we compute the correction and relate it to that discussed by Broadie, Glasserman \& Kou (\emph{Mathematical Finance} {\bf 7}, 325 (1997)) for barrier options. In the Bermudan case, the continuity correction is an order of magnitude smaller than in the corresponding barrier problem. We also show that the optimal exercise boundary in the discrete case is slightly higher than in the continuously sampled case.

    If 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.

    File URL:
    Download Restriction: no

    Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2005mf03.

    in new window

    Date of creation: 2005
    Handle: RePEc:sbs:wpsefe:2005mf03
    Contact details of provider: Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:sbs:wpsefe:2005mf03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maxine Collett)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.