Phelan, CE;
Marazzina, D;
Germano, G;
(2020)
Pricing methods for α-quantile and perpetual early exercise options based on Spitzer identities.
Quantitative Finance
, 20
(6)
pp. 899-918.
10.1080/14697688.2020.1718192.
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Abstract
We present new numerical schemes for pricing perpetual Bermudan and American options as well as α-quantile options. This includes a new direct calculation of the optimal exercise boundary for early-exercise options. Our approach is based on the Spitzer identities for general Lévy processes and on the Wiener–Hopf method. Our direct calculation of the price of α-quantile options combines for the first time the Dassios–Port–Wendel identity and the Spitzer identities for the extrema of processes. Our results show that the new pricing methods provide excellent error convergence with respect to computational time when implemented with a range of Lévy processes.
| Type: | Article |
|---|---|
| Title: | Pricing methods for α-quantile and perpetual early exercise options based on Spitzer identities |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1080/14697688.2020.1718192 |
| Publisher version: | https://doi.org/10.1080/14697688.2020.1718192 |
| Language: | English |
| Additional information: | Copyright © 2020 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. |
| Keywords: | Lévy processes, Spitzer identities, Hindsight options, Perpetual Bermudan options, Perpetual American options |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10093639 |
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