Pricing and Hedging American Options: A Recursive Integration Method

Jing zhi Huang, Marti G. Subrahmanyam, G. George Yu

Research output: Contribution to journalArticle

140 Scopus citations

Abstract

In this article, we present a new method for pricing and hedging American options along with an efficient implementation procedure. The proposed method is efficient and accurate in computing both option values and various option hedge parameters. We demonstrate the computational accuracy and efficiency of this numerical procedure in relation to other competing approaches. We also suggest how the method can be applied to the case of any American option for which a closed-form solution exists for the corresponding European option.

Original languageEnglish (US)
Pages (from-to)277-300
Number of pages24
JournalReview of Financial Studies
Volume9
Issue number1
DOIs
StatePublished - 1996

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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