On backward stochastic differential equations approach to valuation of American options

DOI10.4064/BA59-3-8MaRDI QIDQ3100574zbMATH OpenOpenAlexWikidataFDO

Authors Tomasz Klimsiak, Andrzej Rozkosz

Publication date 24 November 2011

Published in Bulletin Polish Acad. Sci. Math. (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1012.4442

zbMATH Keywords

American optionbackward stochastic differential equationobstacle problem

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Applications of stochastic analysis (to PDEs, etc.) (60H30)

Abstract: We consider the problem of valuation of American (call and put) options written on a dividend paying stock governed by the geometric Brownian motion. We show that the value function has two different but related representations: by means of a solution of some nonlinear backward stochastic differential equation and weak solution to some semilinear partial differential equation.

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• The early exercise premium representation for American options on multiply assets
• Reflected BSDEs and the obstacle problem for semilinear PDEs in divergence form
• The stochastic balance equation for the American option value function and its gradient
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• Forward indifference valuation of American options
• Valuing American options by simulation: a BSDEs approach
• American options in nonlinear markets
• Reflected Backward Stochastic Differential Equations, Convex Risk Measures and American Options
• A semilinear Black and Scholes partial differential equation for valuing American options
• On time-dependent functionals of diffusions corresponding to divergence form operators
• On perpetual American options in a multidimensional Black-Scholes model
• Backward simulation methods for pricing American options under the CIR process
• The valuation of American options for a class of diffusion processes
• A new method of valuing American options based on Brownian models

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