An FBSDE Approach to American Option Pricing with an Interacting Particle Method
Seisho Sato () and
Asia-Pacific Financial Markets, 2015, vol. 22, issue 3, 239-260
In the paper, we propose a new calculation scheme for American options in the framework of a forward backward stochastic differential equation (FBSDE). The well-known decomposition of an American option price with that of a European option of the same maturity and the remaining early exercise premium can be cast into the form of a decoupled non-linear FBSDE. We numerically solve the FBSDE by applying an interacting particle method recently proposed by Fujii and Takahashi ( 2012c ), which allows one to perform a Monte Carlo simulation in a fully forward-looking manner. We perform the fourth-order analysis for the Black–Scholes (BS) model and the third-order analysis for the Heston model. The comparison to those obtained from existing tree algorithms shows the effectiveness of the particle method. Copyright Springer Japan 2015
Keywords: BSDE; FBSDE; Asymptotic expansion; Perturbation; Particle method; 65C30 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:apfinm:v:22:y:2015:i:3:p:239-260
Ordering information: This journal article can be ordered from
Access Statistics for this article
Asia-Pacific Financial Markets is currently edited by Jiro Akahori
More articles in Asia-Pacific Financial Markets from Springer, Japanese Association of Financial Economics and Engineering
Series data maintained by Sonal Shukla ().