CONVERGENCE PROPERTY OF AN INTERIOR PENALTY APPROACH TO PRICING AMERICAN OPTION

被引：22

作者：

Zhang, Kai ^{[1
,2
]}

Wang, Song ^{[3
]}

机构：

[1] Shenzhen Univ, Sch Business, Shenzhen 518060, Peoples R China

[2] Guosen Secur Co Ltd, Postdoctoral Programme, Shenzhen 518060, Peoples R China

[3] Univ Western Australia, Sch Math & Stat, Crawley, WA 6009, Australia

来源：

JOURNAL OF INDUSTRIAL AND MANAGEMENT OPTIMIZATION | 2011年 / 7卷 / 02期

基金：

中国国家自然科学基金;

关键词：

Complementarity Problem; Variational Inequalities; Option Pricing; Penalty Method;

D O I：

10.3934/jimo.2011.7.435

中图分类号：

T [工业技术];

学科分类号：

08 ;

摘要：

This paper establishes a convergence theory for an interior penalty method for a linear complementarity problem governing American option valuation. By introducing an interior penalty term, we first transform the complementarity problem into a nonlinear degenerated Black-Scholes PDE. We then prove that the PDE is uniquely solvable and its solution converges to that of the original complementarity problem. Furthermore, we demonstrate the advantages of the interior penalty method over exterior penalty methods by comparing it with an existing exterior penalty method.

引用

页码：435 / 447

页数：13

共 19 条

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