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2answers
166 views

Who Uses American Options?

...in other words, why would a person want to have the right to exercise an option early? What advantage does that really give you? Are Euro-style options not good enough for some people? Who are ...
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1answer
28 views

American option - Upper bound

I have computed a lower bound for an american option through longstaff and schwartz's algorithm. Now I have to compute the upper bound as andersen and broadie does in their article. Can anybody help ...
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1answer
102 views

Complicated American style option contract with numerous non-standard features (simultanous exercise, additional premium, etc.)

I want to value the following contract for times $0<t<T$, i.e. determine $V(t,\cdot)$ where $\cdot$ refers to all other dependences (strike, spot, volatility, etc.). The contract is long and ...
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1answer
45 views

Foresight bias in least square monte carlo

Foresight bias means we tend to over estimate the American option value. This we observe in other areas of statistics - e.g. in sample test almost always gives better prediction than out of sample ...
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0answers
163 views

American Swaption Heding with Malliavin Calculus

Hedging American Swaption Hello, I priced an American swaption using Black model with swap rates diffusion to find the european (call) price at t. $$ C_t = (\delta \sum_{j=n+1}^{M+1} ...
5
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0answers
71 views

recent developments in American options?

I have read the paper written by Egloff (2005) using machine learning techniques to solve the optimal stopping problem. Is there any development in pricing American options during 2005-2016? (based ...
5
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0answers
152 views

Pricing an American call under the CGMY model

I am pricing an American call under the CGMY model ($0 < Y < 1$) with strike $K$ at grid point $(x_i,\tau_j)$ where $x_i=x_{min}+i\,\Delta x $ for $i=0,1,...N$ and $\Delta ...
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0answers
48 views

How to price lookback american option when its payment is distributed during its life

I would like to price a floating strike american lookback with a particular feature: I don't want to charge upfront the client, rather I would like to insert a "running fee", some sort of a dividend. ...
4
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0answers
95 views

LSM American Option pricing with dividends

Under the Longstaff-Schwartz LSM method for an American call, how should I account for a continuous dividend paying stock? I assume that it'll needs to be accounted for when simulating the underlying ...
3
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0answers
58 views

Solution for american perpetual put

I have been attempting an exercise in which I have to determine the value of an american perpetual put, $P$ in terms of the asset value $S$. The solution to the exercise says: When $S>S_f$ (the ...
3
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0answers
220 views

Constructing Volatility Smile from American Options

My question is about best practices for reconstructing volatility smiles for a fixed tenor from American option data. For simplicity/liquidity, I am currently considering options on SPY. I am ...
3
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0answers
147 views

negative transition probabilities in the heston model

I've been trying to implement a bivariate tree for pricing american options with the heston model in R using the paper of Beliaeva and Nawalkha ...
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0answers
61 views

How can the time value portion of an option be higher than 100%?

Here's a screenshot from InteractiveBrokers TWS for the near-the-money put and call on the ES Dec '15 Future: The absolute value of the time value, 9.50, makes sense. But why is the percentage ...
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0answers
65 views

Two-period binomial model for American option

Consider a two-period binomial model for a risk asset with each period equal to a year and take $S_0 = 1$, $u = 1.5$, and $l = 0.6$. The interest rate for both periods is $R = .1$. a.) Price ...
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0answers
40 views

Binary American Call Option (Cash or Nothing)

Suppose we have a stock with current price $S(0)=X$ and the interest rate is zero. When the stock reaches level $\$ H$ for the first time ($H>X$), the option can be exercised and its payoff is $\$ ...
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0answers
38 views

Pricing function $P(S,t)$ is convex in $S$ for all $t$

I am now reading Alternative Characterization of American Put Options by Carr et all (available at http://www.math.nyu.edu/research/carrp/papers/pdf/amerput7.pdf). There is a theorem called 'Main ...
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0answers
31 views

Jacobian for Newton method for American options by front fixing

In this paper Penalty and front-fixing methods for the numerical solution of American option problems a front fixing method based on Newton is described for an American put option is described. I am ...
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0answers
386 views

Implied volatility from American options using python

I am currently trying to construct volatility surface from american option prices (using Cox-Ross-Rubinstein tree) in Python 2.7. Below you can find the code I came up with. Any corrections would be ...
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0answers
137 views

American Swaption Pricing with PDE discretization

So I am still trying to price an american swaption. (MC approach here: American Swaption Pricing with Monte-Carlo method) I've found in Paul Wilmott, The mathematics of financial derivatives, a PDE ...
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0answers
32 views

Most recent work on American option **ANALYTIC** pricing

I am studying American options and inquisitive on why they lack an analytic pricing formula. I found a paper by Kim,1990 on analytic valuation of these options and then Byun,2005 paper which studies ...
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0answers
67 views

Hedging American Derivative

Reading the book by Andrea Pascucci "PDE and Martingale Methods in Option Pricing", pp. 84, I found something that appears inconsistent to me. It concerns the construction of the optimal portfolio for ...