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English

Pricing american options under stochastic volatility and stochastic interest rates

Collection
  • Cahiers de recherche; 2007.10
Publication date2007
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 options
  • Stochastic volatility
  • Stochastic interest rates
  • Asymptotic approximation
Citation (ISO format)
MEDVEDEV, Alexey, SCAILLET, Olivier. Pricing american options under stochastic volatility and stochastic interest rates. 2007
Main files (1)
Report
accessLevelPublic
Identifiers
  • PID : unige:5730
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1173downloads

Technical informations

Creation15/04/2010 14:19:33
First validation15/04/2010 14:19:33
Update time14/03/2023 16:26:21
Status update14/03/2023 16:26:21
Last indexation29/10/2024 15:21:33
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