Article: Pricing and hedging american options analytically: A perturbation method

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TitlePricing and hedging american options analytically: A perturbation method
AuthorsZhang, JE1
Li, T2
KeywordsAmerican option
Analytical formula
Black-Scholes equation
Critical stock price
Perturbation method
Issue Date2010
PublisherWiley-Blackwell Publishing, Inc.. The Journal's web site is located at http://www.wiley.com/bw/journal.asp?ref=0960-1627
CitationMathematical Finance, 2010, v. 20 n. 1, p. 59-87 [How to Cite?]
DOI: http://dx.doi.org/10.1111/j.1467-9965.2009.00389.x
AbstractThis paper studies the critical stock price of American options with continuous dividend yield. We solve the integral equation and derive a new analytical formula in a series form for the critical stock price. American options can be priced and hedged analytically with the help of our critical-stock-price formula. Numerical tests show that our formula gives very accurate prices. With the error well controlled, our formula is now ready for traders to use in pricing and hedging the S&P 100 index options and for the Chicago Board Options Exchange to use in computing the VXO volatility index. © 2010 Wiley Periodicals, Inc.
ISSN0960-1627
2011 Impact Factor: 1.246
2011 SCImago Journal Rankings: 0.048
DOIhttp://dx.doi.org/10.1111/j.1467-9965.2009.00389.x
ReferencesReferences in Scopus
DC Field
Value
dc.contributor.authorZhang, JE
dc.contributor.authorLi, T
dc.date.accessioned2010-09-06T09:06:48Z
dc.date.available2010-09-06T09:06:48Z
dc.date.issued2010
dc.description.abstractThis paper studies the critical stock price of American options with continuous dividend yield. We solve the integral equation and derive a new analytical formula in a series form for the critical stock price. American options can be priced and hedged analytically with the help of our critical-stock-price formula. Numerical tests show that our formula gives very accurate prices. With the error well controlled, our formula is now ready for traders to use in pricing and hedging the S&P 100 index options and for the Chicago Board Options Exchange to use in computing the VXO volatility index. © 2010 Wiley Periodicals, Inc.
dc.description.naturepostprint
dc.identifier.citationMathematical Finance, 2010, v. 20 n. 1, p. 59-87 [How to Cite?]
DOI: http://dx.doi.org/10.1111/j.1467-9965.2009.00389.x
dc.identifier.citeulike6564081
dc.identifier.doihttp://dx.doi.org/10.1111/j.1467-9965.2009.00389.x
dc.identifier.epage87
dc.identifier.hkuros168635
dc.identifier.issn0960-1627
2011 Impact Factor: 1.246
2011 SCImago Journal Rankings: 0.048
dc.identifier.issue1
dc.identifier.openurl
dc.identifier.scopuseid_2-s2.0-74949140698
dc.identifier.spage59
dc.identifier.urihttp://hdl.handle.net/10722/85579
dc.identifier.volume20
dc.languageeng
dc.publisherWiley-Blackwell Publishing, Inc.. The Journal's web site is located at http://www.wiley.com/bw/journal.asp?ref=0960-1627
dc.publisher.placeUnited States
dc.relation.ispartofMathematical Finance
dc.relation.referencesReferences in Scopus
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License
dc.subjectAmerican option
dc.subjectAnalytical formula
dc.subjectBlack-Scholes equation
dc.subjectCritical stock price
dc.subjectPerturbation method
dc.titlePricing and hedging american options analytically: A perturbation method
dc.typeArticle
Author Affiliations
  1. The University of Hong Kong
  2. Tsinghua University