Numerical Pricing of American Lookback Options with Continuous Sampling of the Maximum

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F20%3A10247790" target="_blank" >RIV/61989100:27510/20:10247790 - isvavai.cz</a>
Alternative codes found
RIV/46747885:24510/20:00009603
Result on the web
<a href="https://www.webofscience.com/wos/woscc/full-record/WOS:000668460800028" target="_blank" >https://www.webofscience.com/wos/woscc/full-record/WOS:000668460800028</a>
DOI - Digital Object Identifier
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Result language
angličtina
Original language name
Numerical Pricing of American Lookback Options with Continuous Sampling of the Maximum
Original language description
Exotic options whose payoff depends on the extrema of the underlying asset over a certain period of time form a class of the lookback options. Moreover, the American constraint admits early exercise and thus these contingent claims have become increasingly popular hedging and speculation instrument over recent years. In this paper we restrict ourselves to the floating and fixed strike contracts with the continuously observed maximum only. Since no analytic formulae exist for this case, we follow a PDE approach. The corresponding American lookback option pricing problem leads to the parabolic partial differential inequality subject to a constraint, which can be handled by penalty techniques. As a result, we obtain an option pricing equation of the Black-Scholes type, where the path-dependent variable appears as a parameter only in the initial and boundary conditions. The numerical approach proposed is based on the modification of the discontinuous Galerkin method incorporating a penalty term that handles the early-exercise constraint. The capabilities of the numerical scheme are demonstrated within a simple empirical study on the reference experiments.
Czech name
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Czech description
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Project
<a href="/en/project/GA18-13951S" target="_blank" >GA18-13951S: New approaches to financial time series modelling based on soft computing</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2020
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Article name in the collection
38th International Conference on Mathematical Methods in Economics (MME 2020) : conference proceedings : September 9-11, 2020, Mendel University in Brno, Czech Republic
ISBN
978-80-7509-734-7
ISSN
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e-ISSN
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Number of pages
7
Pages from-to
186-192
Publisher name
Mendel University in Brno
Place of publication
Brno
Event location
Brno
Event date
Sep 9, 2020
Type of event by nationality
WRD - Celosvětová akce
UT code for WoS article
000668460800028

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