Randomization and the American Put

Peter Carr

The Review of Financial Studies, 1998, vol. 11, issue 3, 597-626

Abstract: While American calls on non-dividend-paying stocks may be valued as European, there is no completely explicit exact solution for the values of American puts. We use a technique called randomization to value American puts and calls on dividend-paying stocks. This technique yields a new semi-explicit approximation for American option values in the Black-Scholes model. Numerical results indicate that the approximation is both accurate and computationally efficient. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1998
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Working Paper: Randomization and the American Put (1996)
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