A Shannon Wavelet Method for Pricing American Options under Two-Factor Stochastic Volatilities and Stochastic Interest Rate
| Autor: | Xunxiang Guo, Huang Shoude |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2020 |
| Předmět: |
050208 finance
Characteristic function (probability theory) Series (mathematics) Article Subject media_common.quotation_subject 05 social sciences Shannon wavelet Inverse Richardson extrapolation 010103 numerical & computational mathematics 01 natural sciences Interest rate Heston model Modeling and Simulation 0502 economics and business Econometrics QA1-939 Asset (economics) 0101 mathematics Mathematics media_common |
| Zdroj: | Discrete Dynamics in Nature and Society, Vol 2020 (2020) |
| ISSN: | 1026-0226 |
| DOI: | 10.1155/2020/8531959 |
| Popis: | In the paper, the pricing of the American put options under the double Heston model with Cox–Ingersoll–Ross (CIR) interest rate process is studied. The characteristic function of the log asset price is derived, and thereby Bermuda options are well evaluated by means of a state-of-the-art Shannon wavelet inverse Fourier technique (SWIFT), which is a robust and highly efficient pricing method. Based on the SWIFT method, the price of American option can be approximated by using Richardson extrapolation schemes on a series of Bermudan options. Numerical experiments show that the proposed pricing method is efficient, especially for short-term American put options. |
| Databáze: | OpenAIRE |
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