Valuing American options by simulation: A BSDEs approach

Tomasz Klimsiak, Andrzej Rozkosz and Bartosz Ziemkiewicz

Mathematics and Computers in Simulation (MATCOM), 2016, vol. 123, issue C, 1-18

Abstract: We provide probabilistic proofs of convergence of several easy to implement schemes for computing the value function of American (call and put) options written on a dividend paying stock governed by the geometric Brownian motion. The proofs are based on representations of the value function by means of solutions of some backward stochastic differential equations. Despite the probabilistic nature of the proofs the numerical schemes are nevertheless deterministic. Simulation results are also presented.

Keywords: American option; Backward stochastic differential equation; Obstacle problem; Numerical approximation (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:123:y:2016:i:c:p:1-18

DOI: 10.1016/j.matcom.2015.11.009

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