Numerical study of splitting methods for American option valuation

Karel in 't Hout and Radoslav Valkov

Papers from arXiv.org

Abstract: This paper deals with the numerical approximation of American-style option values governed by partial differential complementarity problems. For a variety of one- and two-asset American options we investigate by ample numerical experiments the temporal convergence behaviour of three modern splitting methods: the explicit payoff approach, the Ikonen-Toivanen approach and the Peaceman-Rachford method. In addition, the temporal accuracy of these splitting methods is compared to that of the penalty approach.

Date: 2016-10
New Economics Papers: this item is included in nep-cmp
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1610.09622

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