✦ LIBER ✦

Nonparametric American option pricing

✍ Scribed by Jamie Alcock; Trent Carmichael

Publisher: John Wiley and Sons
Year: 2008
Tongue: English
Weight: 358 KB
Volume: 28
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.20335

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

A nonparametric method is introduced to accurately price American‐style contingent claims. This method uses only historical stock price data, not option price data, to generate the American option price. The accuracy of this method is tested in a controlled experimental environment under both Black, F and Scholes, M (1973) and Heston, S (1993) assumptions, and an error‐metric analysis is performed. These numerical experiments demonstrate that this method is an accurate and precise method of pricing American options under a variety of market conditions. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:717–748, 2008

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