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American Option Américaine Options American options and Numerical Methods

In: Capital Market Finance

Author

Listed:
  • Patrice Poncet

    (ESSEC Business School)

  • Roland Portait

    (ESSEC Business School)

Abstract

American options, unlike European ones, may be optimally early exercised. Section 13.1 is devoted to conditions for early exercise and to call-put “parity” relationships. Section 13.2 presents analytical methods of valuation which generally do not yield exact analytic formulas. Numerical methods are flexible and powerful tools, adapted to a wide variety of problems for which no analytical solution is available. We present first in Sect. 13.3 the simplest numerical method for valuing American options, an adapted version of the binomial model. Then, in Sect. 13.4, we analyze three other types of numerical methods: finite differences, trinomial and multi-dimensional trees.

Suggested Citation

  • Patrice Poncet & Roland Portait, 2022. "American Option Américaine Options American options and Numerical Methods," Springer Texts in Business and Economics, in: Capital Market Finance, chapter 13, pages 501-548, Springer.
    • Handle: RePEc:spr:sptchp:978-3-030-84600-8_13
    DOI: 10.1007/978-3-030-84600-8_13
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