Fast Accurate Valuation of American Options

Posted: 20 Dec 1998

See all articles by Dmitri Faguet

Dmitri Faguet

Johnson Wax, Ukraine

Peter Carr

New York University Finance and Risk Engineering

Date Written: June 29, 1994

Abstract

We present a novel approach for contingent claim valuation in the Black Scholes model called the ANALYTIC METHOD OF LINES. The approach is applied to the valuation of American options for which early exercise is optimal. We develop explicit valuation formulae for both the option value and the critical stock price. The formulae are arbitrarily accurate and computationally efficient. We compare our results against other approaches and find significantly improved speed and accuracy.

JEL Classification: G13

Suggested Citation

Faguet, Dmitri and Carr, Peter P., Fast Accurate Valuation of American Options (June 29, 1994 ). Available at SSRN: https://ssrn.com/abstract=5415

Dmitri Faguet

Johnson Wax, Ukraine ( email )

252073 Kiev
Ukraine
Not Available (Phone)
Not Available (Fax)

Peter P. Carr (Contact Author)

New York University Finance and Risk Engineering ( email )

6 MetroTech Center
Brooklyn, NY 11201
United States
9176217733 (Phone)

HOME PAGE: http://engineering.nyu.edu/people/peter-paul-carr

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