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Article: Evaluating American put options on zero-coupon bonds by a penalty method

TitleEvaluating American put options on zero-coupon bonds by a penalty method
Authors
KeywordsAmerican Put Option
Finite Volume Method
Linear Complementarity Problem
Power Penalty Method
Zero-Coupon Bond
Issue Date2011
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/cam
Citation
Journal Of Computational And Applied Mathematics, 2011, v. 235 n. 13, p. 3921-3931 How to Cite?
AbstractIn this paper, American put options on zero-coupon bonds are priced under a single factor model of short-term rate. The linear complementarity problem of the option value is solved numerically by a penalty method, by which the problem is transformed into a nonlinear PDE by adding a power penalty term. The solution of the penalized problem converges to that of the original problem. A numerical scheme is established by using the finite volume method and the corresponding stability and convergence are discussed. Numerical results are presented to show the usefulness of the method. © 2011 Elsevier B.V. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/155943
ISSN
2015 Impact Factor: 1.328
2015 SCImago Journal Rankings: 1.089
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorZhou, HJen_US
dc.contributor.authorYiu, KFCen_US
dc.contributor.authorLi, LKen_US
dc.date.accessioned2012-08-08T08:38:32Z-
dc.date.available2012-08-08T08:38:32Z-
dc.date.issued2011en_US
dc.identifier.citationJournal Of Computational And Applied Mathematics, 2011, v. 235 n. 13, p. 3921-3931en_US
dc.identifier.issn0377-0427en_US
dc.identifier.urihttp://hdl.handle.net/10722/155943-
dc.description.abstractIn this paper, American put options on zero-coupon bonds are priced under a single factor model of short-term rate. The linear complementarity problem of the option value is solved numerically by a penalty method, by which the problem is transformed into a nonlinear PDE by adding a power penalty term. The solution of the penalized problem converges to that of the original problem. A numerical scheme is established by using the finite volume method and the corresponding stability and convergence are discussed. Numerical results are presented to show the usefulness of the method. © 2011 Elsevier B.V. All rights reserved.en_US
dc.languageengen_US
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/camen_US
dc.relation.ispartofJournal of Computational and Applied Mathematicsen_US
dc.subjectAmerican Put Optionen_US
dc.subjectFinite Volume Methoden_US
dc.subjectLinear Complementarity Problemen_US
dc.subjectPower Penalty Methoden_US
dc.subjectZero-Coupon Bonden_US
dc.titleEvaluating American put options on zero-coupon bonds by a penalty methoden_US
dc.typeArticleen_US
dc.identifier.emailYiu, KFC:cedric@hkucc.hku.hken_US
dc.identifier.authorityYiu, KFC=rp00206en_US
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1016/j.cam.2011.01.038en_US
dc.identifier.scopuseid_2-s2.0-79955566447en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-79955566447&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume235en_US
dc.identifier.issue13en_US
dc.identifier.spage3921en_US
dc.identifier.epage3931en_US
dc.identifier.isiWOS:000291285500025-
dc.publisher.placeNetherlandsen_US
dc.identifier.scopusauthoridZhou, HJ=37662481700en_US
dc.identifier.scopusauthoridYiu, KFC=24802813000en_US
dc.identifier.scopusauthoridLi, LK=7501447410en_US
dc.identifier.citeulike8747628-

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