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Pricing American options using approximations by Kim integral equations
Mälardalen University, School of Education, Culture and Communication. (Mathematics and Applied Mathematics)
2011 (English)Independent thesis Basic level (university diploma), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The purpose of this thesis is to look into the difficulty of valuing American options, put as well as call, on an asset that pays continuous dividends. The authors are willing to demonstrate how mentioned above securities can be priced using a simple approximation of the Kim integral equations by quadrature formulas. This approach is compared with closed form American Option price formula proposed by Bjerksund-Stenslands in 2002. The results obtained by Bjerksund-Stenslands method are numerically compared by authors to the Kim’s. In Joon Kim’s approximation seems to be more accurate and closer to the chosen “true” value of an American option, however, Bjerksund-Stenslands model is demonstrating a higher speed in calculations.

Place, publisher, year, edition, pages
2011.
Keyword [en]
American options, early exercise boundary, optimal exercise, feasible non-optimal exercise strategy, integral equations, approximations, numerical procedures.
National Category
Other Mathematics
Identifiers
URN: urn:nbn:se:mdh:diva-14366OAI: oai:DiVA.org:mdh-14366DiVA: diva2:510809
Subject / course
Mathematics/Applied Mathematics
Uppsok
Physics, Chemistry, Mathematics
Supervisors
Examiners
Available from: 2014-11-06 Created: 2012-03-18 Last updated: 2014-11-06Bibliographically approved

Open Access in DiVA

Pricing American option using Kim's integral equations(1247 kB)205 downloads
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File name FULLTEXT01.pdfFile size 1247 kBChecksum SHA-512
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Type fulltextMimetype application/pdf

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Total: 205 downloads
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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf