Randomization and the American Put
While American calls on non-dividend paying stocks may be valued as European, there is no completely explicit exact solution for the values of American puts. We introduce a novel technique called randomization to value American puts and calls on dividend-paying stocks. This technique yields a new semi-explicit approximation for American option values in the Black Scholes model. Numerical results indicate that the approximation is both accurate and computationally efficient.
|Date of creation:||15 Oct 1996|
|Date of revision:|
|Note:||Type of Document - LaTeX; prepared on UNIX Sparc TeX; to print on PostScript; pages: 37 ; figures: included. This paper shows how randomization can be used to value American options in the Black Scholes model.|
|Contact details of provider:|| Web page: http://184.108.40.206|
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.:
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Peter Carr & Robert Jarrow & Ravi Myneni, 1992. "Alternative Characterizations Of American Put Options," Mathematical Finance, Wiley Blackwell, vol. 2(2), pages 87-106.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:9610003. 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: (EconWPA)
If references are entirely missing, you can add them using this form.