On convergence of a semi-analytical method for American option pricing

Xiaotie Deng; Yonggeng Gu; Shouyang Wang; Shunming Zhang

doi:10.1016/j.jmaa.2005.09.020

On convergence of a semi-analytical method for American option pricing

Xiaotie Deng
, Yonggeng Gu
, Shouyang Wang
, Shunming Zhang

Department of Computer Science

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

1 Citation (Scopus)

Abstract

We examine the valuation of American put options by a semi-analytical method, and obtain the prior estimate and the convergence of the approximate solution. Our proofs are based on the embedding theorem in Sobolev space and the theory of functional analysis, in particular, the theory of weak compactness. The results in this paper theoretically confirm empirical observations that these methods are accurate and computationally efficient. © 2005 Elsevier Inc. All rights reserved.

Original language	English
Pages (from-to)	353-365
Journal	Journal of Mathematical Analysis and Applications
Volume	313
Issue number	1
DOIs	https://doi.org/10.1016/j.jmaa.2005.09.020
Publication status	Published - 1 Jan 2006

Bibliographical note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Funding

✩ This research is partially supported by a CERG grant of Hong Kong RGC (Grant CityU1156/04E), a SRG grant of City University of Hong Kong (Grant 7001545), and a project of National Natural Science Foundation of China (Grant 70003002). * Corresponding author. E-mail addresses: [email protected], [email protected] (X. Deng), [email protected] (S. Wang), [email protected], [email protected] (S. Zhang).

Research Keywords

American option
Convergence
Free boundary
Prior estimate
Semi-analytic method

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abstract = "We examine the valuation of American put options by a semi-analytical method, and obtain the prior estimate and the convergence of the approximate solution. Our proofs are based on the embedding theorem in Sobolev space and the theory of functional analysis, in particular, the theory of weak compactness. The results in this paper theoretically confirm empirical observations that these methods are accurate and computationally efficient. {\textcopyright} 2005 Elsevier Inc. All rights reserved.",

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AU - Deng, Xiaotie

AU - Gu, Yonggeng

AU - Wang, Shouyang

AU - Zhang, Shunming

N1 - Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

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N2 - We examine the valuation of American put options by a semi-analytical method, and obtain the prior estimate and the convergence of the approximate solution. Our proofs are based on the embedding theorem in Sobolev space and the theory of functional analysis, in particular, the theory of weak compactness. The results in this paper theoretically confirm empirical observations that these methods are accurate and computationally efficient. © 2005 Elsevier Inc. All rights reserved.

AB - We examine the valuation of American put options by a semi-analytical method, and obtain the prior estimate and the convergence of the approximate solution. Our proofs are based on the embedding theorem in Sobolev space and the theory of functional analysis, in particular, the theory of weak compactness. The results in this paper theoretically confirm empirical observations that these methods are accurate and computationally efficient. © 2005 Elsevier Inc. All rights reserved.

KW - American option

KW - Convergence

KW - Free boundary

KW - Prior estimate

KW - Semi-analytic method

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U2 - 10.1016/j.jmaa.2005.09.020

DO - 10.1016/j.jmaa.2005.09.020

M3 - RGC 21 - Publication in refereed journal

SN - 0022-247X

VL - 313

SP - 353

EP - 365

JO - Journal of Mathematical Analysis and Applications

JF - Journal of Mathematical Analysis and Applications

IS - 1

ER -

On convergence of a semi-analytical method for American option pricing

Abstract

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Research Keywords

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