Laplace transform method for pricing American CEV strangles option with two free boundaries
type: Item
instance of: scholarly article
title: Laplace transform method for pricing American CEV strangles option with two free boundaries
zbMATH Open document ID: 1422.91735
DOI: 10.1155/2018/5908646
author: Zhiqiang Zhou
author: Hongying Wu
published in: Discrete Dynamics in Nature and Society
publication date: 2019-02-20T00:00:00Z
review text: Summary: Laplace transform method (LTM) has a lot of applications in the evaluation of European-style options and exotic options without early exercise features. However the Laplace transform methods for pricing American options have unsatisfactory accuracy and suffer from the instability. The aim of this paper is to develop a Laplace transform method for pricing American Strangles options with the underlying asset price following the constant elasticity volatility (CEV) models. By approximating the free boundaries, the Laplace transform is taken on a fixed space region to replace the moving boundaries space. After solving the linear system in Laplace space, Gaver-Stehfest formula (GSF) and hyperbola contour integral method (HCIM) are applied to compute the Laplace inversion. Numerical results show that the LTM-HCIM outperform the LTM-GSF in regard to the accuracy and stability for the option values.
Mathematics Subject Classification ID: 91G20
Mathematics Subject Classification ID: 44A10
Mathematics Subject Classification ID: 60G40
zbMATH DE Number: 7026631
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2018/5908646
OpenAlex ID: W2892175967
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Wikidata QID: Q129282338
description: scientific article; zbMATH DE number 7026631