An Alternative Numerical Scheme to Approximate the Early Exercise Boundary of American Options

Denis Veliu, Roberto De Marchis, Mario Marino and Antonio Luciano Martire ()
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Denis Veliu: Departament of Finance-Banking, Metropolitan University of Tirana, 1000 Tirana, Albania
Roberto De Marchis: MEMOTEF Department, Sapienza University of Rome, 00185 Rome, Italy
Mario Marino: DEAMS “Bruno De Finetti”, University of Trieste, 34127 Trieste, Italy
Antonio Luciano Martire: Department of Business Economics, Roma Tre University, 00185 Rome, Italy

Mathematics, 2022, vol. 11, issue 1, 1-12

Abstract: This paper deals with a new numerical method for the approximation of the early exercise boundary in the American option pricing problem. In more detail, using the mean-value theorem for integrals, we provide a flexible algorithm that allows for reaching a more accurate numerical solution with fewer calculations rather than other previously described methods.

Keywords: American put pricing; nonstandard Volterra integral equations; free boundary problem (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
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