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Please use this identifier to cite or link to this item:
http://hdl.handle.net/1783.1/194
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| Title: | Pricing algorithms for options with exotic path-dependence |
| Authors: | Kwok, Yue Kuen
Lau, Ka Wo |
| Keywords: | Pricing algorithms
Options
Path dependent features
Forward shooting grid algorithms |
| Issue Date: | 2001 |
| Citation: | Journal of derivatives, v.9, iss. 1, Fall 2001, p. 28-38 |
| Abstract: | Pricing algorithms for options with exotic path-dependence using the forward shooting grid approach are characterized by the augmentation of an auxiliary state vector at each grid node on a lattice tree that simulates the discrete asset price process. The state vector is used to capture the specific path-dependent feature of the option contract.
We demonstrate the versatility of the forward shooting grid algorithms by generalizing the approach to price various types of Parisian options, options with reset features, and alpha quantile options. The convergence behaviors of the numerical results obtained by the forward shooting grid algorithms are also examined.
The advantage of the forward shooting grid approach over the finite-difference approach becomes more apparent when the governing differential equation for the option value cannot be expressed in a simple form. |
| URI: | http://hdl.handle.net/1783.1/194 |
| Appears in Collections: | MATH Journal/Magazine Articles
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| pathdep.pdf | | 883Kb | Adobe PDF | View/Open |
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