https://scholars.lib.ntu.edu.tw/handle/123456789/414503
Title: | Richardson extrapolation techniques for the pricing of American-style options | Authors: | Chang C.-C. Chung S.-L. Stapleton R.C. |
Issue Date: | 2007 | Journal Volume: | 27 | Journal Issue: | 8 | Start page/Pages: | 791-817 | Source: | Journal of Futures Markets | Abstract: | In this article, the authors reexamine the American-style option pricing formula of R. Geske and H.E. Johnson (1984), and extend the analysis by deriving a modified formula that can overcome the possibility of nonuniform convergence (which is likely to occur for nonstandard American options whose exercise boundary is discontinuous) encountered in the original Geske-Johnson methodology. Furthermore, they propose a numerical method, the Repeated-Richardson extrapolation, which allows the estimation of the interval of true option values and the determination of the number of options needed for an approximation to achieve a given desired accuracy. Using simulation results, our modified Geske-Johnson formula is shown to be more accurate than the original Geske-Johnson formula for pricing American options, especially for nonstandard American options. This study also illustrates that the Repeated-Richardson extrapolation approach can estimate the interval of true American option values extremely well. Finally, the authors investigate the possibility of combining the binomial Black-Scholes method proposed by M. Broadie and J.B. Detemple (1996) with the Repeated-Richardson extrapolation technique. ? 2007 Wiley Periodicals, Inc. |
URI: | https://scholars.lib.ntu.edu.tw/handle/123456789/414503 | ISSN: | 02707314 | DOI: | 10.1002/fut.20272 |
Appears in Collections: | 財務金融學系 |
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