Randomization and the American Put

38 Pages Posted: 31 Oct 1996

See all articles by Peter Carr

Peter Carr

New York University Finance and Risk Engineering

Multiple version iconThere are 2 versions of this paper

Date Written: October 15, 1996

Abstract

While American calls on non-dividend paying stocks may be valued as European, there is no completely explicit exact solution for the values of American puts. We introduce a novel technique called randomization to value American puts and calls on dividend-paying stocks. This technique yields a new semi-explicit approximation for American option values in the Black Scholes model. Numerical results indicate that the approximation is both accurate and computationally efficient.

JEL Classification: G13

Suggested Citation

Carr, Peter P., Randomization and the American Put (October 15, 1996). Available at SSRN: https://ssrn.com/abstract=715 or http://dx.doi.org/10.2139/ssrn.715

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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