A new numerical method on American option pricing

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	A new numerical method on American option pricing
	Gu, YG ; Shu, JW ; Deng, XT ; Zheng, WM
	2002-06-01
发表期刊	SCIENCE IN CHINA SERIES F
ISSN	1009-2757
卷号	45 期号:3 页码:181-188
摘要	Mathematically, the Black-Scholes model of American option pricing is a free boundary problem of partial differential equation. It is well known that this model is a nonlinear problem, and it has no closed form solution. We can only obtain an approximate solution by numerical method, but the precision and stability are hard to control, because the singularity at the exercise boundary near expiration date has a great effect on precision and stability for numerical method. We propose a new numerical method, FDA method, to solve the American option pricing problem, which combines advantages the Semi-Analytical Method and the Front-Fixed Difference Method. Using the FDA method overcomes the difficulty resulting from the singularity at the terminal of optimal exercise boundary. A large amount of calculation shows that the FDA method is more accurate and stable than other numerical methods.
关键词	American options free boundary analytic method of line finite difference method Black-Scholes equation
语种	英语
WOS研究方向	Computer Science
WOS类目	Computer Science, Information Systems
WOS记录号	WOS:000180416600003
出版者	SCIENCE CHINA PRESS
引用统计
文献类型	期刊论文
条目标识符	http://ir.amss.ac.cn/handle/2S8OKBNM/17793
专题	中国科学院数学与系统科学研究院
通讯作者	Shu, JW
作者单位	1.Hunan Normal Univ, Dept Math, Changsha 410081, Peoples R China 2.Chinese Acad Sci, Inst Syst Sci, Beijing 100080, Peoples R China 3.Tsing Hua Univ, Dept Comp Sci & Technol, Beijing 100084, Peoples R China 4.City Univ Hong Kong, Dept Comp Sci, Hong Kong, Hong Kong, Peoples R China
推荐引用方式 GB/T 7714	Gu, YG,Shu, JW,Deng, XT,et al. A new numerical method on American option pricing[J]. SCIENCE IN CHINA SERIES F,2002,45(3):181-188.
APA	Gu, YG,Shu, JW,Deng, XT,&Zheng, WM.(2002).A new numerical method on American option pricing.SCIENCE IN CHINA SERIES F,45(3),181-188.
MLA	Gu, YG,et al."A new numerical method on American option pricing".SCIENCE IN CHINA SERIES F 45.3(2002):181-188.