UNIGE document Report
previous document  unige:5730  next document
add to browser collection
Title

Pricing american options under stochastic volatility and stochastic interest rates

Authors
Year 2007
Collection Cahiers de recherche; 2007.10
Abstract We introduce a new analytical approach to price American options. Using an explicit and intuitively proxy for the exercise rule, we derive tractable pricing formulas using a short-maturity asymptotic expansion. Depending on model parameters, this method can accurately price options with time-to-maturity up to several years. The main advantage of our approach over existing methods lies in its straightforward extension to models with stochastic volatility and stochastic interest rates. We exploit this advantage by providing an analysis of the impact of volatility mean-reversion, volatility of volatility, and correlations on the American put price.
Keywords American optionsStochastic volatilityStochastic interest ratesAsymptotic approximation
Full text
Structures
Citation
(ISO format)
MEDVEDEV, Alexey, SCAILLET, Olivier. Pricing american options under stochastic volatility and stochastic interest rates. 2007 https://archive-ouverte.unige.ch/unige:5730

255 hits

754 downloads

Update

Deposited on : 2010-04-15

Export document
Format :
Citation style :