American option pricing in Gauss–Markov interest rate models

Stefano Galluccio

Physica A: Statistical Mechanics and its Applications, 1999, vol. 269, issue 1, 61-71

Abstract: In the context of Gaussian non-homogeneous interest-rate models, we study the problem of American bond option pricing. In particular, we show how to efficiently compute the exercise boundary in these models in order to decompose the price as a sum of a European option and an American premium. Generalizations to coupon-bearing bonds and jump-diffusion processes for the interest rates are also discussed.

Keywords: Option pricing theory; Stochastic processes; Optimal stochastic control (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:269:y:1999:i:1:p:61-71

DOI: 10.1016/S0378-4371(99)00080-1

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