New answers tagged

4

That’s because in the case of a non dividend paying asset (the usual studied case), an American call is worth the same as a European call. Conversely for a non dividend paying asset the American put is different from the European put, so the American put needs special methods. Nonetheless, once you study a pricing algorithm on an American put such as a tree,...


-1

Binomial tree is better for american style options. I've already done comparison between LS montecarlo and binomial tree and i found that binomial tree gives more precise results for the same computation time. For comparison, you know that european call and american call with the same inputs and zero dividend should give the same price. So, I've defined as ...


0

You guessed the reason correctly. When you try to estimate the supremum across a sample, your estimator is indeed less than (or equal if you are lucky) the true supremum. Another method to get an upper bound for the price is the Andersen-Broadie algorithm, which estimates an infimum over a set of (discrete) martingales, which for the opposite reason is ...


1

It depends of the convexity of the function f. I guess you already heard about the fact that american call price is the same as european call price when there is no dividends. It is still valid for bermudan call as its price is between american call price and european call price. Please have a look on this document for more details: http://www.stat....


3

The advantage is that you get to keep the option premium. The obvious drawback is that your option can be exercised. You’re effectively capping your maximum gains on stock price increase.


Top 50 recent answers are included