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Front-Tracking Finite Difference Methods for the Valuation of American Options

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  • Pantazopoulos, K N
  • Houstis, E N
  • Kortesis, S

Abstract

This paper is concerned with the numerical solution of the American option valuation problem formulated as a parabolic free boundary/initial value model. We introduce and analyze a front-tracking finite difference method and compare it with other commonly used techniques. The numerical experiments performed indicate that the front-tracking method considered is an efficient alternative for approximating simultaneously the option value and free boundary functions associated with the valuation problem. Citation Copyright 1998 by Kluwer Academic Publishers.

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  • Pantazopoulos, K N & Houstis, E N & Kortesis, S, 1998. "Front-Tracking Finite Difference Methods for the Valuation of American Options," Computational Economics, Springer;Society for Computational Economics, vol. 12(3), pages 255-273, December.
    • Handle: RePEc:kap:compec:v:12:y:1998:i:3:p:255-73
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    Cited by:

    1. Koulisianis, M.D & Papatheodorou, T.S, 2000. "A ‘moving index’ method for the solution of the American options valuation problem," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 54(4), pages 373-381.
    2. Andrey Klimenko & Alexander Kalgin, 2018. "Strategic Planning in the Russian Federal Government: Implementation, Costs, and Conditions of Effectiveness," HSE Working papers WP BRP 17/PSP/2018, National Research University Higher School of Economics.

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