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Stochastic approximation methods for American type options.
- Source :
- Communications in Statistics: Theory & Methods; 2016, Vol. 45 Issue 6, p1607-1631, 25p
- Publication Year :
- 2016
-
Abstract
- Stochastic approximation methods for rewards of American type options are studied. Pay-off functions are non random possibly discontinuous functions or random càdlàg functions. General conditions of convergence for binomial, trinomial, and skeleton reward approximations are formulated. Underlying log-price processes are assumed to be random walks. These processes are approximated by log-price processes given by random walks with discrete distributions of jumps. Backward recurrence algorithms for computing of reward functions for approximating log-price processes are given. These approximation algorithms and their rates of convergence are numerically tested for log-price processes represented by Gaussian and compound Gaussian random walks. Comparison of the above approximation methods is made. [ABSTRACT FROM PUBLISHER]
Details
- Language :
- English
- ISSN :
- 03610926
- Volume :
- 45
- Issue :
- 6
- Database :
- Complementary Index
- Journal :
- Communications in Statistics: Theory & Methods
- Publication Type :
- Academic Journal
- Accession number :
- 113740221
- Full Text :
- https://doi.org/10.1080/03610926.2014.915046