A new method for American option pricing

摘要：

A Crandall-Douglas scheme is designed to obtain quick and accurate solutions to the heat equation problems. This method has the advantage of being second-order accuracy in time and fourth-order accuracy in space and can even be made sixth-order accuracy if we restrict the size of the time step. Using the Crandall-Douglas scheme, we can recast the problem of pricing an American option as a heat equation problem.In this article we utilize an expanding the grid technique to develop a method of combining Crandall-Douglas scheme for American option price on a single asset with a method proposed by Allegretto and Barone-Adesi (ABA method) for dealing with optimal exercise boundary.Through comparison with existing popular methods by numerical experiments, this method is both very accurate and highly efficient one for pricing American option.

关键词： American option pricing Crandall-Douglas scheme optimal exercise boundary ABA method the grids expansion technique.

作者: Danmei Zhu Tie Zhang Dongling Chen

作者单位: College of Information Science and Engineering, Northeastern University Shenyang , China

会议类型: 国际会议

会议名称: 2007 Conference on Systems Science, Management Science and System Dynamics(第二届系统科学、管理科学与系统动力学国际会议)

会议地点: 上海

会议语种:英文

页码: 3171-3176

在线出版日期: 2007-10-19（万方平台首次上网日期，不代表论文的发表时间）