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Dynamic Programming Approach to Price American Options

We propose a dynamic programming (DP) approach for pricing American options over a finite time horizon. We model uncertainty in stock price that follows geometric Brownian motion (GBM) and let interest rate and volatility be fixed. A procedure based on dynamic programming combined with piecewise linear interpolation approximation is developed to price the value of options. And we introduce the free boundary problem into our model. Numerical experiments illustrate the relation between value of option and volatility.

Identiferoai:union.ndltd.org:NSYSU/oai:NSYSU:etd-0706112-175421
Date06 July 2012
CreatorsYeh, Yun-Hsuan
ContributorsJen-Chih Yao, Hong-Kun Xu, Lai-Jiu Lin, Ngai-Ching Wong
PublisherNSYSU
Source SetsNSYSU Electronic Thesis and Dissertation Archive
LanguageEnglish
Detected LanguageEnglish
Typetext
Formatapplication/pdf
Sourcehttp://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-0706112-175421
Rightsunrestricted, Copyright information available at source archive

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