An Early-Exercise-Probability Perspective of American Put Options in the Low-Interest-Rate Era

2014 ◽  
Vol 35 (12) ◽  
pp. 1154-1172 ◽  
Author(s):  
Daniel Wei-Chung Miao ◽  
Yung-Hsin Lee ◽  
Wan-Ling Chao
Keyword(s):  
Interest Rate ◽  
Put Options ◽  
Early Exercise ◽  
American Put Options ◽  
American Put

scholarly journals A Shannon Wavelet Method for Pricing American Options under Two-Factor Stochastic Volatilities and Stochastic Interest Rate

2020 ◽  
Vol 2020 ◽  
pp. 1-8
Author(s):  
Huang Shoude ◽  
Xunxiang Guo
Keyword(s):  
Interest Rate ◽  
Asset Price ◽  
Heston Model ◽  
Put Options ◽  
American Put Options ◽  
Stochastic Interest ◽  
Stochastic Volatilities ◽  
Shannon Wavelet ◽  
Bermudan Options ◽  
American Put

In the paper, the pricing of the American put options under the double Heston model with Cox–Ingersoll–Ross (CIR) interest rate process is studied. The characteristic function of the log asset price is derived, and thereby Bermuda options are well evaluated by means of a state-of-the-art Shannon wavelet inverse Fourier technique (SWIFT), which is a robust and highly efficient pricing method. Based on the SWIFT method, the price of American option can be approximated by using Richardson extrapolation schemes on a series of Bermudan options. Numerical experiments show that the proposed pricing method is efficient, especially for short-term American put options.

scholarly journals COMPARISON OF NUMERICAL AND ANALYTICAL APPROXIMATIONS OF THE EARLY EXERCISE BOUNDARY OF AMERICAN PUT OPTIONS

2010 ◽  
Vol 51 (4) ◽  
pp. 430-448 ◽  
Author(s):  
M. LAUKO ◽  
D. ŠEVČOVIČ
Keyword(s):  
Numerical Scheme ◽  
Analytical Approximation ◽  
Approximation Formula ◽  
Put Options ◽  
Early Exercise ◽  
Analytical Approximations ◽  
American Put Options ◽  
Exercise Boundary ◽  
Early Exercise Boundary ◽  
American Put

AbstractWe present qualitative and quantitative comparisons of various analytical and numerical approximation methods for calculating a position of the early exercise boundary of American put options paying zero dividends. We analyse the asymptotic behaviour of these methods close to expiration, and introduce a new numerical scheme for computing the early exercise boundary. Our local iterative numerical scheme is based on a solution to a nonlinear integral equation. We compare numerical results obtained by the new method to those of the projected successive over-relaxation method and the analytical approximation formula recently derived by Zhu [‘A new analytical approximation formula for the optimal exercise boundary of American put options’, Int. J. Theor. Appl. Finance9 (2006) 1141–1177].

scholarly journals Estimating the Early Exercise Premium of American Put Index Options

2009 ◽  
Author(s):  
Ako Doffou
Keyword(s):  
Interest Rates ◽  
Test Results ◽  
Quality Test ◽  
Index Options ◽  
Put Options ◽  
Early Exercise ◽  
Accuracy Test ◽  
American Put Options ◽  
American Put ◽  
Early Exercise Premium

This paper examines empirically the value of early exercise by testing the ability of two American put valuation models to predict the early exercise premium for the S&P 100 American put options. An accuracy test and a quality test are performed on (1) the MacMillan and Barone-Adesi and Whaley model, and (2) the Carr, Jarrow and Myneni model. The test results show that early exercise premium is significant regardless of moneyness. Moreover, consistent with the theory, the value of early exercise is significantly negatively related to moneyness and interest rates and significantly positively related to time to maturity and to the volatility of the underlying index. Both American put valuation models examined do not fully capture the value of early exercise embedded in American put prices.  

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