Exercisability Randomization of the American Option
The valuation of American options is an optimal stopping time problem which typically leads to a free boundary problem. We introduce here the randomization of the exercisability of the option. This method considerably simplifies the problematic by transforming the free boundary problem into an evolu...
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| Format: | article |
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2008
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| Online Access: | http://hdl.handle.net/11073/16670 |
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| _version_ | 1864513431917297664 |
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| author | Leduc, Guillaume |
| author_facet | Leduc, Guillaume |
| author_role | author |
| dc.creator.none.fl_str_mv | Leduc, Guillaume |
| dc.date.none.fl_str_mv | 2008 2020-06-02T10:44:53Z 2020-06-02T10:44:53Z |
| dc.format.none.fl_str_mv | application/pdf |
| dc.identifier.none.fl_str_mv | Leduc Guillaume, Exercisability Randomization of the American Option, Stochastic Analysis and Applications 26 (June, 2008), no. 4, 832-855. doi: 10.1080/07362990802128669 1532-9356 http://hdl.handle.net/11073/16670 10.1080/07362990802128669 |
| dc.language.none.fl_str_mv | en_US |
| dc.publisher.none.fl_str_mv | Taylor & Frances Online |
| dc.relation.none.fl_str_mv | https://doi.org/10.1080/07362990802128669 |
| dc.subject.none.fl_str_mv | American options Evolution equation Free boundary problem Optimal stopping time problem Randomization |
| dc.title.none.fl_str_mv | Exercisability Randomization of the American Option |
| dc.type.none.fl_str_mv | Peer-Reviewed Published version info:eu-repo/semantics/publishedVersion info:eu-repo/semantics/article |
| description | The valuation of American options is an optimal stopping time problem which typically leads to a free boundary problem. We introduce here the randomization of the exercisability of the option. This method considerably simplifies the problematic by transforming the free boundary problem into an evolution equation. This evolution equation can be transformed in a way that decomposes the value of the randomized option into a European option and the present value of continuously paid benefits. This yields a new binomial approximation for American options. We prove that the method is accurate and numerical results illustrate that it is computationally efficient. |
| format | article |
| id | aus_e0782415b86a93533be928d3483bfecc |
| identifier_str_mv | Leduc Guillaume, Exercisability Randomization of the American Option, Stochastic Analysis and Applications 26 (June, 2008), no. 4, 832-855. doi: 10.1080/07362990802128669 1532-9356 10.1080/07362990802128669 |
| language_invalid_str_mv | en_US |
| network_acronym_str | aus |
| network_name_str | aus |
| oai_identifier_str | oai:repository.aus.edu:11073/16670 |
| publishDate | 2008 |
| publisher.none.fl_str_mv | Taylor & Frances Online |
| repository.mail.fl_str_mv | |
| repository.name.fl_str_mv | |
| repository_id_str | |
| spelling | Exercisability Randomization of the American OptionLeduc, GuillaumeAmerican optionsEvolution equationFree boundary problemOptimal stopping time problemRandomizationThe valuation of American options is an optimal stopping time problem which typically leads to a free boundary problem. We introduce here the randomization of the exercisability of the option. This method considerably simplifies the problematic by transforming the free boundary problem into an evolution equation. This evolution equation can be transformed in a way that decomposes the value of the randomized option into a European option and the present value of continuously paid benefits. This yields a new binomial approximation for American options. We prove that the method is accurate and numerical results illustrate that it is computationally efficient.Taylor & Frances Online2020-06-02T10:44:53Z2020-06-02T10:44:53Z2008Peer-ReviewedPublished versioninfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfLeduc Guillaume, Exercisability Randomization of the American Option, Stochastic Analysis and Applications 26 (June, 2008), no. 4, 832-855. doi: 10.1080/073629908021286691532-9356http://hdl.handle.net/11073/1667010.1080/07362990802128669en_UShttps://doi.org/10.1080/07362990802128669oai:repository.aus.edu:11073/166702024-08-22T12:01:31Z |
| spellingShingle | Exercisability Randomization of the American Option Leduc, Guillaume American options Evolution equation Free boundary problem Optimal stopping time problem Randomization |
| status_str | publishedVersion |
| title | Exercisability Randomization of the American Option |
| title_full | Exercisability Randomization of the American Option |
| title_fullStr | Exercisability Randomization of the American Option |
| title_full_unstemmed | Exercisability Randomization of the American Option |
| title_short | Exercisability Randomization of the American Option |
| title_sort | Exercisability Randomization of the American Option |
| topic | American options Evolution equation Free boundary problem Optimal stopping time problem Randomization |
| url | http://hdl.handle.net/11073/16670 |