The Effect of Nonsmooth Payoffs on the Penalty Approximation of American Options

DOI10.1137/12087743XzbMath1282.91330arXiv1008.0836OpenAlexW1997754871MaRDI QIDQ2873140

Jan Hendrik Witte, S. D. Howison, Christoph Reisinger

Publication date: 23 January 2014

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL: https://arxiv.org/abs/1008.0836

zbMATH Keywords

penalty methodAmerican optionjump-diffusion modelnonsmooth payoffpenalization error

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Derivative securities (option pricing, hedging, etc.) (91G20)

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Penalty and penalty-like methods for nonlinear HJB PDEs ⋮ The randomized American option as a classical solution to the penalized problem ⋮ Hamilton-Jacobi-Bellman quasi-variational inequality arising in an environmental problem and its numerical discretization ⋮ SMOOTH UPPER BOUNDS FOR THE PRICE FUNCTION OF AMERICAN STYLE OPTIONS ⋮ A comparison of iterated optimal stopping and local policy iteration for American options under regime switching ⋮ Numerical Study of Splitting Methods for American Option Valuation ⋮ A two-grid penalty method for American options ⋮ A penalty scheme and policy iteration for nonlocal HJB variational inequalities with monotone nonlinearities ⋮ Pricing American options under multi-state regime switching with an efficientL- stable method ⋮ Free boundary and retirement benefits pricing in a jump-diffusion model ⋮ Penalty method for indifference pricing of American option in a liquidity switching market

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