American option pricing in Gauss–Markov interest rate models

In the context of Gaussian non-homogeneous interest-rate models, we study the problem of American bond option pricing. In particular, we show how to efficiently compute the exercise boundary in these models in order to decompose the price as a sum of a European option and an American premium. Generalizations to coupon-bearing bonds and jump-diffusion processes for the interest rates are also discussed.

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Year of publication:	1999
Authors:	Galluccio, Stefano
Published in:	Physica A: Statistical Mechanics and its Applications. - Elsevier, ISSN 0378-4371. - Vol. 269.1999, 1, p. 61-71
Publisher:	Elsevier
Subject:	Option pricing theory \| Stochastic processes \| Optimal stochastic control

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010664802