PRICING AND HEDGING AMERICAN OPTIONS: A RECURSIVE INTEGRATION METHOD

Jingzhi Huang, Marti G. Subrahmanyam and G. George Yu
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Marti G. Subrahmanyam: Stern School of Business, Finance Department, New York University, 44 West 4th Street, Suite 9-190, New York, NY 10012, USA and Goldman, Sachs & Co., 85, Brood Street, New York, NY 10004, USA
G. George Yu: Stern School of Business, Finance Department, New York University, 44 West 4th Street, Suite 9-190, New York, NY 10012, USA and Goldman, Sachs & Co., 85, Brood Street, New York, NY 10004, USA

Chapter 8 in Quantitative Analysis in Financial Markets:Collected Papers of the New York University Mathematical Finance Seminar, 1999, pp 219-239 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn this article, we present a new method for pricing and hedging American options along with an efficient implementation procedure. The proposed method is efficient and accurate in computing both option values and various option hedge parameters. We demonstrate the computational accuracy and efficiency of this numerical procedure in relation to other competing approaches. We also suggest how the method can be applied to the case of any American option for which a closed-form solution exists for the corresponding European option.

Date: 1999
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Journal Article: Pricing and Hedging American Options: A Recursive Integration Method (1996)
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