For many practitioners and market participants, the valuation of financialderivatives is considered of very high importance as its uses range from arisk management tool, to a speculative investment strategy or capital enhancement. A developing market requires efficient but accurate methods...

As the American early exercise results in a free boundary problem, in this article we add a penalty term to obtain a partial differential equation, and we also focus on an improved definition of the penalty term for American options. We replace the constant penalty parameter with a...

Laplace transform methods are used to study the valuation of American call and put options with constant dividend yield, and to derive integral equations giving the location of the optimal exercise boundary. In each case studied, the main result of this paper is a nonlinear Fredholm-type...

This paper proposes an efficient approach to compute the prices of American style options in the GARCH framework. Rubinstein's (1998) Edgeworth tree idea is combined with the analytical formulas for moments of the cumulative return under GARCH developed in Duan et al. (1999, 2002) to yield a...

We propose and empirically study a pricing model for convertible bonds based on Monte Carlo simulation. The method uses parametric representations of the early exercise decisions and consists of two stages. Pricing convertible bonds with the proposed Monte Carlo approach allows us to better...

This paper provides a survey of recent numerical methods for pricing derivative securities. Methods for standard American options on a single underlying asset, barrier and lookback options and options on multiple assets are reviewed. Criteria for comparison of different approaches are discussed....

We provide a comprehensive treatment of option pricing with particular emphasis on the valuation of American options on dividend-paying essets. We begin by reviewing valuation principles for European contingent claims in a financial market in which the underlying asset price follows an Itô...

In this paper we propose a feasible way to price American options in a model with time varying volatility and conditional skewness and leptokurtosis using GARCH processes and the Normal Inverse Gaussian distribution. We show how the risk neutral dynamics can be obtained in this model, we...

Even in the simple case that two price processes follow correlated geometric Brownian motions with constant volatility no analytic formula for the price of a standard European spread option has been derived, except when the strike is zero in which case the option becomes an exchange option. This...