Application of Compound Options in the Evaluation of American Puts

José Ferreira Marinho Junior () and Mauro Antonio Rincon ()
Additional contact information
José Ferreira Marinho Junior: Instituto de Matemática, Universidade Federal do Rio de Janeiro (UFRJ)
Mauro Antonio Rincon: Instituto de Matemática, Universidade Federal do Rio de Janeiro (UFRJ)

Brazilian Review of Finance, 2006, vol. 4, issue 2, 169-179

Abstract: In this article, a numerical method is developed to determine the value of a put, based in the solution of Black and Scholes (1973) for European option and on Richardson extrapolation that calculates the limit of an options sequence, whose time intervals tend to zero. In the beginning of the 70s, Black and Scholes (1973) and Merton (1973) they had developed partial differential equation, whose solution it determines the value of an European option. The boundary condition will go to determine the type of option (purchase or sale). Values for the put are calculated, priced and compared with methods of the numerical integration and the binomial approach.

Keywords: Risk Management; Financial Markets; Numerical Methods (search for similar items in EconPapers)
JEL-codes: C02 C15 C63 (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations:

Downloads: (external link)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/download/1160/361 (application/pdf)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/view/1160 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:4:y:2006:i:2:p:169-179

Access Statistics for this article

Brazilian Review of Finance is currently edited by Marcio Laurini

More articles in Brazilian Review of Finance from Brazilian Society of Finance
Bibliographic data for series maintained by Marcio Laurini ().