On backward stochastic differential equations approach to valuation of American options

DOI10.4064/BA59-3-8zbMATH Open1229.91313arXiv1012.4442OpenAlexW2963211899WikidataQ131317335 ScholiaQ131317335MaRDI QIDQ3100574FDOQ3100574

Authors: Tomasz Klimsiak, Andrzej Rozkosz 

Publication date: 24 November 2011

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

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.

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

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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)

Cited In (14)

• The early exercise premium representation for American options on multiply assets
• The stochastic balance equation for the American option value function and its gradient
• Reflected BSDEs and the obstacle problem for semilinear PDEs in divergence form
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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 perpetual American options in a multidimensional Black-Scholes model
• Backward simulation methods for pricing American options under the CIR process
• On time-dependent functionals of diffusions corresponding to divergence form operators
• The valuation of American options for a class of diffusion processes
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