A Survey of the Integral Representation of American Option Prices

Carl Chiarella (), Adam Kucera and Andrew Ziogas ()
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Andrew Ziogas: School of Finance and Economics, University of Technology, Sydney, http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=1377

No 118, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper surveys some of the literature on American option pricing, in particular the representations of McKean (1965), Kim (1990) and Carr, Jarrow and Myneni (1992). It is proposed that the approach regarding the problem as a free boundary value problem, and solving this via incomplete Fourier transforms, is the most robust for further developments involving more complex payo structures, and higher dimensional problems such as multi-asset American options. Some comparison of dierent numerical solution methods is also provided.

Keywords: American options; Volterra integral equation; incomplete Fourier transform; free-boundary problem (search for similar items in EconPapers)
JEL-codes: C61 D11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-02-01
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