An approximate moving boundary method for American option pricing.
European Journal of Operational Research(2015)
Abstract
•We tackle the free boundary problem of pricing American options.•We use a one factor approximation of the optimal exercise boundary.•The approximation allows us to compute option prices quickly.•Using an approximation results in an insignificant loss in accuracy.•The approximation could be used to compute the price of a single option using the PDE.
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Key words
Stochastic control,Optimal stopping,Free boundary PDEs,Approximate boundaries
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