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3546. Efficient Approximations for American Options in Markets with Daily Price Limits
Invited abstract in session WC-39: Financial Modelling, stream Stochastic Modelling.
Wednesday, 12:30-14:00Room: 35 (building: 306)
Authors (first author is the speaker)
| 1. | Jia-Hau Guo
|
| Department of Information Management and Finance, National Yang Ming Chiao Tung University | |
| 2. | Yi-He Chang
|
| Information Management and Finance, National Yang Ming Chiao Tung University |
Abstract
This paper proposes solutions for pricing American options on stocks in markets with daily price limits. We first extend the intraday density function of Guo and Chang (2020) to a multi-day one. Next, we adopt the fast Fourier transform (FFT) to derive accurate and efficient formulae for American options in the framework of Kim (1990) and Chang et al. (2016) and, further, employ the three-point Richardson extrapolation to accelerate the computation. Finally, the accuracy of our proposed methods is verified by simulations. We also note that more restrictive daily price limits could force put options to be exercised earlier.
Keywords
- Financial Modelling
- Optimization in Financial Mathematics
- Stochastic Models
Status: accepted
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