Richardson extrapolation techniques for the pricing of American-style options

Chuang Chang Chang, San Lin Chung, Richard C. Stapleton

研究成果: 雜誌貢獻期刊論文同行評審

44 引文 斯高帕斯(Scopus)


In this article, the authors reexamine the American-style option pricing formula of R. Geske and H.E. Johnson (1984), and extend the analysis by deriving a modified formula that can overcome the possibility of nonuniform convergence (which is likely to occur for nonstandard American options whose exercise boundary is discontinuous) encountered in the original Geske-Johnson methodology. Furthermore, they propose a numerical method, the Repeated-Richardson extrapolation, which allows the estimation of the interval of true option values and the determination of the number of options needed for an approximation to achieve a given desired accuracy. Using simulation results, our modified Geske-Johnson formula is shown to be more accurate than the original Geske-Johnson formula for pricing American options, especially for nonstandard American options. This study also illustrates that the Repeated-Richardson extrapolation approach can estimate the interval of true American option values extremely well. Finally, the authors investigate the possibility of combining the binomial Black-Scholes method proposed by M. Broadie and J.B. Detemple (1996) with the Repeated-Richardson extrapolation technique.

頁(從 - 到)791-817
期刊Journal of Futures Markets
出版狀態已出版 - 8月 2007


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