Journal of Korean Institute of Industrial Engineers (대한산업공학회지)

Korean Institute of Industrial Engineers (대한산업공학회)
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An Iterative Method for American Put Option Pricing under a CEV Model

수치적 반복 수렴 방법을 이용한 CEV 모형에서의 아메리칸 풋 옵션 가격 결정

  • Lee, Seungkyu (Department of Industrial and Management Engineering, Pohang University of Science and Technology) ;
  • Jang, Bong-Gyu (Department of Industrial and Management Engineering, Pohang University of Science and Technology) ;
  • Kim, In Joon (Yonsei School of Business)
  • Received : 2012.10.31
  • Accepted : 2012.11.13
  • Published : 2012.12.01
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Abstract

We present a simple numerical method for pricing American put options under a constant elasticity of variance (CEV) model. Our analysis is done in a general framework where only the risk-neutral transition density of the underlying asset price is given. We obtain an integral equation of early exercise premium. By exploiting a modification of the integral equation, we propose a novel and simple numerical iterative valuation method for American put options.

Keywords

Acknowledgement

Supported by : 한국연구재단

References

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