A simple numerical method for pricing an American put option

Beom Jin Kim, Yong Ki Ma, Hi Jun Choe

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

We present a simple numerical method to find the optimal exercise boundary in an American put option. We formulate an intermediate function with the fixed free boundary that has Lipschitz character near optimal exercise boundary. Employing it, we can easily determine the optimal exercise boundary by solving a quadratic equation in time-recursive way. We also present several numerical results which illustrate a comparison to other methods.

Original languageEnglish
Article number128025
JournalJournal of Applied Mathematics
Volume2013
DOIs
Publication statusPublished - 2013 Apr 29

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Exercise
Pricing
Numerical methods
Numerical Methods
Costs
Quadratic equation
Free Boundary
Lipschitz
Numerical Results
Character

All Science Journal Classification (ASJC) codes

  • Applied Mathematics

Cite this

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A simple numerical method for pricing an American put option. / Kim, Beom Jin; Ma, Yong Ki; Choe, Hi Jun.

In: Journal of Applied Mathematics, Vol. 2013, 128025, 29.04.2013.

Research output: Contribution to journalArticle

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