TY - JOUR
T1 - An Explicit Finite Difference Approach to the Pricing Problems of Perpetual Bermudan Options
AU - Muroi, Yoshifumi
AU - Yamada, Takashi
PY - 2008/12
Y1 - 2008/12
N2 - The pricing problem of options with an early exercise feature, such as American options, is one of the important topics in mathematical finance. Pricing formulas for options with the early exercise feature, however, are not easy to obtain and the numerical methods are thus frequently required to derive the price of these options. The value function of perpetual Bermudan options is characterized with the partial differential equation and this is solved by the finite difference method in this article.
AB - The pricing problem of options with an early exercise feature, such as American options, is one of the important topics in mathematical finance. Pricing formulas for options with the early exercise feature, however, are not easy to obtain and the numerical methods are thus frequently required to derive the price of these options. The value function of perpetual Bermudan options is characterized with the partial differential equation and this is solved by the finite difference method in this article.
KW - Explicit finite difference methods
KW - Interior point methods
KW - Linear complementarity problem
KW - Linear programming methods
KW - Optimal stopping problems
KW - Perpetual Bermudan options
KW - PSOR algorithm
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U2 - 10.1007/s10690-009-9080-x
DO - 10.1007/s10690-009-9080-x
M3 - Article
AN - SCOPUS:62349127161
SN - 1387-2834
VL - 15
SP - 229
EP - 253
JO - Asia-Pacific Financial Markets
JF - Asia-Pacific Financial Markets
IS - 3-4
ER -