An Explicit Finite Difference Approach to the Pricing Problems of Perpetual Bermudan Options

Yoshifumi Muroi, Takashi Yamada

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

The pricing problem of options with an early exercise feature, such as American options, is one of the important topics in mathematical finance. Pricing formulas for options with the early exercise feature, however, are not easy to obtain and the numerical methods are thus frequently required to derive the price of these options. The value function of perpetual Bermudan options is characterized with the partial differential equation and this is solved by the finite difference method in this article.

Original languageEnglish
Pages (from-to)229-253
Number of pages25
JournalAsia-Pacific Financial Markets
Volume15
Issue number3-4
DOIs
Publication statusPublished - 2008 Dec 1
Externally publishedYes

Keywords

  • Explicit finite difference methods
  • Interior point methods
  • Linear complementarity problem
  • Linear programming methods
  • Optimal stopping problems
  • PSOR algorithm
  • Perpetual Bermudan options

ASJC Scopus subject areas

  • Finance

Fingerprint Dive into the research topics of 'An Explicit Finite Difference Approach to the Pricing Problems of Perpetual Bermudan Options'. Together they form a unique fingerprint.

  • Cite this