Valuation of American options by the gradient projection method

Changhyun Kwon, Terry Lee Friesz

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We study an equivalent optimization problem with an inequality constraint and boundary conditions, whose necessary condition for optimality is the variational inequality presentation of American options. To solve the problem, we use the gradient projection method, with discretizations both in time and space. We tested the algorithm and compared with the projective successive over-relaxation method.

Original languageEnglish (US)
Pages (from-to)380-388
Number of pages9
JournalApplied Mathematics and Computation
Volume206
Issue number1
DOIs
StatePublished - Dec 1 2008

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Gradient Projection Method
American Options
Relaxation Method
Inequality Constraints
Valuation
Variational Inequalities
Optimality
Discretization
Boundary conditions
Optimization Problem
Necessary Conditions
Presentation

All Science Journal Classification (ASJC) codes

  • Computational Mathematics
  • Applied Mathematics

Cite this

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Valuation of American options by the gradient projection method. / Kwon, Changhyun; Friesz, Terry Lee.

In: Applied Mathematics and Computation, Vol. 206, No. 1, 01.12.2008, p. 380-388.

Research output: Contribution to journalArticle

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