Numerical Pricing of American-Style Options within the Black and Scholes Framework
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F46747885%3A24510%2F18%3A00008637" target="_blank" >RIV/46747885:24510/18:00008637 - isvavai.cz</a>
Result on the web
<a href="https://www.ekf.vsb.cz/cerei/cs/aktualni-cislo/archiv/rocnik-21/index.html" target="_blank" >https://www.ekf.vsb.cz/cerei/cs/aktualni-cislo/archiv/rocnik-21/index.html</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.7327/cerei.2018.12.03" target="_blank" >10.7327/cerei.2018.12.03</a>
Alternative languages
Result language
angličtina
Original language name
Numerical Pricing of American-Style Options within the Black and Scholes Framework
Original language description
Option pricing is one of the classical problems in financial engineering. Since exact solutions in analytical form are available for simple option contracts in particular, a numerical approach is desirable due to the fact that relaxed standard assumptions do not allow the construction of such solutions. In this paper,we consider the problem of pricing American-style options in the classical Black–Scholes framework; that is, we admit the early exercise feature. This constraint can be viewed as an additional non-linear source term in the option-pricing partial differential equation. The contribution of the paper lies in the proposal of a numerical scheme to solve this pricing equation and in the relationship of the presented technique with the existing pricing approaches. The numerical approach is based on the modification of the discontinuous Galerkin method incorporating a penalty term that handles the early exercise constraint. The capabilities of the scheme derived are documented using reference experiments and compared with the standard finite difference method.
Czech name
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Czech description
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Classification
Type
J<sub>ost</sub> - Miscellaneous article in a specialist periodical
CEP classification
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OECD FORD branch
10102 - Applied mathematics
Result continuities
Project
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Continuities
I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace
Others
Publication year
2018
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Ekonomická revue – Central European Review of Economic Issues
ISSN
1212-3951
e-ISSN
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Volume of the periodical
21
Issue of the periodical within the volume
4
Country of publishing house
CZ - CZECH REPUBLIC
Number of pages
7
Pages from-to
117-123
UT code for WoS article
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EID of the result in the Scopus database
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