Pricing and Hedging American Options: A Recursive Integration Method

Pricing and static hedging of American-style options under the jump to default extended CEV model

“…However, the numerical efficiency of this approach depends on the specification that is adopted for the unknown early exercise boundary. For example, Huang et al (1996) adopt a time consuming step function approximation, while Ju (1998) proposes a multipiece exponential representation of the early exercise boundary.…”

“…As argued in Nunes (2009Nunes ( , page 1250, the optimal stopping approach offers a better speedaccuracy trade-off than the pricing methodology of Detemple and Tian (2002)-which is based on the (very time consuming) full recursive method of Huang et al (1996)-and the accelerated recursive scheme of Kim and Yu (1996), for valuing option contracts under the CEV assumption. Therefore, the accuracy and efficiency of the SHP approach for valuing American-style options under the CEV model will be compared against the option pricing framework proposed by Nunes (2009).…”

Optimal Time to Enter a Retirement Village

“…and where all controls, apart from π * κ (t), depend on the health state at time t. To replicate an American put option, we use the delta hedging defined in Huang et al [39],…”

Option Pricing Under Stochastic Interest Rates

“…In the last equation, we use the fact To solve problem (8) and (9), we draw a new transformation of independent variables, ( , ; ) X y P r t T  (13) and a new unknown function denotes as ( , , ) ( , ) ( , ; )…”