A multidimensional transform for pricing American options under stochastic volatility models

Natalia Beliaeva, Ye Chen, Sanjay Nawalkha, Michael Sullivan and Sami Zreik

Journal of Computational Finance

Abstract: This paper presents a transform-based approach for pricing American options under stochastic volatility models. The multidimensional transform-based method allows for the construction of simple path-independent lattices for both one- and two-volatility- factor stochastic volatility models. We construct simple path-independent lattices and prove the convergence of the discrete processes to the underlying continuous ones. Our transform-based approach is computationally efficient and accurate for pricing American options under low-dimensional stochastic volatility models.

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