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Jan 15

Friday's reading list 15/01/2010

Posted by abiao at 19:01 | Others | Comments(0) | Reads(3224)
Two paper I find pretty interesting this week, both are published in Mathematical Finance Journal:
1, PRICING AND HEDGING AMERICAN OPTIONS ANALYTICALLY: A PERTURBATION METHOD, by JIN E. ZHANG and TIECHENG LI, "This paper studies the critical stock price of American options with continuous dividend yield. We solve the integral equation and derive a new analytical formula in a series form for the critical stock price. American options can be priced and hedged analytically with the help of our critical-stock-price formula. Numerical tests show that our formula gives very accurate prices. With the error well controlled, our formula is now ready for traders to use in pricing and hedging the S&P 100 index options and for the Chicago Board Options Exchange to use in computing the VXO volatility index."

2, ACHIEVING HIGHER ORDER CONVERGENCE FOR THE PRICES OF EUROPEAN OPTIONS IN BINOMIAL TREES, by MARK S. JOSHI, "A new family of binomial trees as approximations to the Black–Scholes model is introduced. For this class of trees, the existence of complete asymptotic expansions for the prices of vanilla European options is demonstrated and the first three terms are explicitly computed.As special cases, a treewith third-order convergence is constructed and the conjecture of Leisen and Reimer that their tree has second-order convergence is proven." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=976561


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