Questions tagged [american-options]

The tag has no usage guidance.

190 questions
Filter by
Sorted by
Tagged with
134 views

Using return on equity instead of risk free rate when pricing an equity call option

I am currently a second year university student studying business, so excuse my lack of knowledge regarding the subject. I am currently studying the binomial options pricing model, which involves ...
630 views

Why it is not possible to price American perpetual call option using PDE approach?

Using a standard PDE approach to price an American perpetual put option I obtain that the price of such option has the following form: $$V(S) = A S + B S^{-2r/\sigma^2}.$$ And then I need to find a ...
66 views

Are perpetual american options traded on real stock exchanges?

I am looking for any information about perpetual american options from practical point of view? Are they traded on stock exchanges? Do investment banks deal with such products?
118 views

Optimal exercise boundary at expiration

According to Kim (1990, p.560) in "The Analytic Valuation of American Options". I understand the first minimum condition where K sets the lower bound of the optimal exercise boundary at expiry, but ...
53 views

Did i miss something on the American put option problem?

Maybe this is a stupid question, i dont know, anyhow i recently read this part from an article, Can someone explain the part " American put value function ...and the exercise boundary jointly solve ...
69 views

Put price, payoff, how come? [closed]

From Merton (1973) the following boundary condition is valid for an American put. G(S,t:E) >= Max [0,E-S] I dont understand how the Rational put price can be ...
428 views

Am Call = Euro Call if r is non-negative and Am Put = Euro Put if r is negative

It can be proven that under non-negative interest rates, it is never optimal to exercise an American call option, such that: We know, if R >= 0, the current price C of a Europen (and American) call ...
3k views

Early exercise of American options

I know this question is considered basic and has been asked millions of times, but I have done my research and there are some points that I just can't understand. For an American call, many ...
128 views

Do we need to derive the PDE for the option price when applying Least Squares Monte Carlo?

I want to price an American call option based on an underlying that follows a jump-diffusion process with an inhomogeneous jump frequency function. My mathematical skills are not sufficient to derive ...
71 views

Pricing Secured Barrier Call 2

EDIT: OK, I understand the reasoning for the initial answer now; however, I don't understand why we would need the digital call with a strike of 33 in this question. Is it just there to serve as a red ...
106 views

87 views

Benchmark value for American Options under stochastic volatility

Does anyone know any kind of method that produces reasonably well results for American Options under Heston Model setting that could be used as benchmark value? Since right now my goal is to ...
115 views

Estimate American-style option delta from similar options

I have a data set which looks something like this, referring to American-style put and call options: ...
143 views

Is there any useful links for option pricing (american + asian + european) using R

I'm trying to evaluate option pricing mainly american, asian and european options in order to get a plot to measure option valuation in time. Is there any useful references to do that using R ?
370 views

American Vs European Options behavior with fixed strikes and varying expiration

Following is from page 10 of Fengler (2005), "The prices of American calls for the same strikes must be nondecreasing, Merton (1973), and in the absence of dividends, this property translates to ...
2k views

Implied Volatility Surface - log forward moneyness

I'm reading this paper by Fengler (2005) and have came across the below snippet. context: Implied volatiltiy surface plot has 3 dimensions IV, Strike, Time to Maturity. Author replaced Strike with ...
263 views

Real Options: Calculating the “option to switch use” using binomial lattices

I'm currently looking into calculating the "option to switch use" to determine the benefit of the ability to switch between two technologies at any point in time (american option). This is also called ...
110 views

First passage probability in american option pricing

In an article i recently read (The American Put Option and Its Critical Stock Price by David S. Bunch and Herb Johnson link) the authors presented this formula as something very general and as common ...
374 views

Soft American Options

On Page 24-25 of N. Taleb's "Dynamic Hedging" the author talks about "Soft American Options" A soft American option (also called a pseudo-European option) is only subjected to early exercise from ...
185 views

why we drop the last term in the Barone-Adesi Whaley formula

In this paper Efficient Analytic Approximation of American Option Values in the first several lines of page 306, the author dropped the last term in equation 11, he explained that when $T\to 0$, we ...
243 views

Building implied binomial tree with American input options

i want to build an implied volatility binomial tree with American input options, so the setup is the following: 1) We know the market Price P of the American Put $P_{am}(t_i,K)$, where $t_i$ is the ...