Non-parametric American option valuation using Cressie–Read divergences

Jamie Alcock and Godfrey Smith
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Godfrey Smith: School of Mathematics and Physics, The University of Queensland, Australia

Australian Journal of Management, 2017, vol. 42, issue 2, 252-275

Abstract: In this paper we build on the possibility that the use of the Cressie–Read family with the non-parametic method for valuing European option might be extended to non-parametric valuation of American options. We derive a suite of non-parametric methods to price and hedge American-style options, utilising the Cressie-Read family of divergences. We test the efficacy of these methods using a large sample of traded American-style options struck on the S&P100 index. We find that in general, our suite of non-parametric valuation schemes generate more accurate price estimates than traditional parametric schemes, especially for longer-dated options.

Keywords: American options; Cressie–Read family; non-parametric methods (search for similar items in EconPapers)
JEL-codes: C14 G13 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:42:y:2017:i:2:p:252-275

DOI: 10.1177/0312896215622799

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