A Series Solution for Bermudan Options

Ingmar Evers

Applied Mathematical Finance, 2005, vol. 12, issue 4, 337-349

Abstract: This paper presents closed-form expressions for pricing Bermudan options in terms of an infinite series of standard solutions of the Black-Scholes equation. These standard solutions are combined for successive exercise dates using backward induction. At each exercise date, the optimal exercise price of the underlying asset is the root of a one-dimensional nonlinear algebraic equation. Numerical examples demonstrate the convergence of the series to the solution obtained using alternative methods. The work presented precedes a more general approach for Bermudan options on multiple assets involving multi-dimensional Hermite polynomials.

Keywords: Bermudan options; Repeated integrals of the error function; Backward induction; Series solution; Multi-asset options (search for similar items in EconPapers)
Date: 2005
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/13504860500080263 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apmtfi:v:12:y:2005:i:4:p:337-349

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAMF20

DOI: 10.1080/13504860500080263

Access Statistics for this article

Applied Mathematical Finance is currently edited by Professor Ben Hambly and Christoph Reisinger

More articles in Applied Mathematical Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().