Analytical Approximations for the Critical Stock Prices of American Options: A Performance Comparison Report as inadecuate




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Abstract

Many e±cient and accurate analytical methods for pricing American options now exist. However, while they can produce accurate option prices, they often do not give accurate critical stock prices. In this paper, we propose two new analytical approximations for American options based on the quadratic approximation. We compare our methods with existing analytical methods including the quadratic approximations in Barone-Adesi and Whaley 1987 and Barone-Adesi and Elliott 1991, the lower bound approximation in Broadie and Detemple 1996, the tangent approximation in Bunch and Johnson 2000, the Laplace inversion method in Zhu 2006b, and the interpolationmethod in Li 2008. Both of our methods give much more accurate critical stock prices than allthe existing methods above.



Item Type: MPRA Paper -

Original Title: Analytical Approximations for the Critical Stock Prices of American Options: A Performance Comparison-

Language: English-

Keywords: American option; Analytical approximation; Critical stock price-

Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation ModelingC - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical MethodsG - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing-





Author: Minqiang Li, Li

Source: https://mpra.ub.uni-muenchen.de/15018/







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