Convergence analysis of a monotonic penalty method for American option pricing

DOI10.1016/J.JMAA.2008.07.072MaRDI QIDQ950483zbMATH OpenOpenAlexFDO

Authors Kai Zhang, Xiao Qi Yang, Kok Lay Teo

Publication date 22 October 2008

Published in Journal of Mathematical Analysis and Applications (Search for Journal in Brave)

Full work available at URL http://hdl.handle.net/20.500.11937/45039

zbMATH Keywords

option pricingpenalty methodvariational inequalitiescomplementarity problemBlack-Scholes operator

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Complementarity and equilibrium problems and variational inequalities (finite dimensions) (aspects of mathematical programming) (90C33) Variational inequalities (49J40) Programming in abstract spaces (90C48)

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Cites work

• scientific article; zbMATH DE number 3919744 (Why is no real title available?)
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• scientific article; zbMATH DE number 3517582 (Why is no real title available?)
• scientific article; zbMATH DE number 3608670 (Why is no real title available?)
• A power penalty approach to numerical solutions of two-asset American options
• Augmented Lagrangian method applied to American option pricing
• Decreasing Functions with Applications to Penalization
• Finite element method for hemivariational inequalities. Theory, methods and applications
• Option pricing: A simplified approach
• Penalty methods for American options with stochastic volatility
• Power penalty method for a linear complementarity problem arising from American option valuation
• Quadratic convergence for valuing American options using a penalty method
• Some mathematical results in the pricing of American options
• Some results about duality and exact penalization
• The pricing of options and corporate liabilities

Cited in

(16)

• A continuous-time model for valuing foreign exchange options
• Power penalty approach to American options pricing under regime switching
• On power penalty methods for linear complementarity problems arising from American option pricing
• American option pricing problem transformed on finite interval
• On convergence of a semi-analytical method for American option pricing
• Pricing of American carbon emission derivatives and numerical method under the mixed fractional Brownian motion
• Augmented Lagrangian method applied to American option pricing
• Numerical performance of penalty method for American option pricing
• MONOTONICITY AND CONVEXITY OF OPTION PRICES REVISITED
• Convergence analysis of power penalty method for American bond option pricing
• Pricing American bond options using a cubic spline collocation method
• Convergence property of an interior penalty approach to pricing American option
• Pricing American bond options using a penalty method
• Quadratic convergence for valuing American options using a penalty method
• The effect of nonsmooth payoffs on the penalty approximation of American options
• A penalty approximation method for a semilinear parabolic double obstacle problem

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