A two-step simulation procedure to analyze the exercise features of American options

Autor:	Paolo Pianca, Antonella Basso, Martina Nardon
Rok vydání:	2004
Předmět:	Mathematical optimization Operations research Mathematics Subject Classification Binomial (polynomial) Computer science Monte Carlo methods for option pricing Monte Carlo method Two step Stopping rule Boundary (topology) General Economics Econometrics and Finance Strike price Finance
Zdroj:	Decisions in Economics and Finance. 27:35-56
ISSN:	1129-6569 1593-8883
DOI:	10.1007/s10203-004-0045-2
Popis:	In this contribution we propose a two-step simulation procedure that enables to compute the exercise features of American options and analyze the properties of the optimal exercise times and exercise probabilities. The first step of the procedure is based on the calculation of an accurate approximation of the optimal exercise boundary. In particular, we use a smoothed binomial method which effectively reduces the fluctuating behavior of a discrete boundary. In the second step the boundary is used to define a stopping rule which is embodied in a Monte Carlo simulation method. A broad experimental analysis is carried out in order to test the procedure and study the behavior of the exercise features. Mathematics Subject Classification (2000): 60G40, 60J60, 65C20 Journal of Economic Literature Classification: G13
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_dedup___::a48f82a817a3c3c76b05b5c916e54e66 https://doi.org/10.1007/s10203-004-0045-2 Zobrazit plný text záznamu Full text from SpringerLink