Static hedging and pricing american options

Please note that Internet Explorer version 8. Please refer to this blog post for more information. This paper utilizes the static hedge portfolio SHP approach of Derman et al.

Static Hedging and Pricing American Options by San-Lin Chung, Pai-Ta Shih :: SSRN

Journal of Derivatives 2, 78—95] and Carr et al. Static hedging of exotic options.

Journal of Finance 53, —] to price and hedge American options under the Black-Scholes model and the constant elasticity of variance CEV model of Cox [Cox, J. Notes on option pricing I: Constant elasticity of variance diffusion.

Working Paper, Stanford University]. The static hedge portfolio of an American option is formulated by applying the value-matching and smooth-pasting conditions on the early exercise boundary. The results indicate that the numerical efficiency of our static hedge portfolio approach is comparable to some recent advanced numerical methods such as Broadie and Detemple [Broadie, M. New bounds, approximations, and a comparison of existing methods.

Static Hedging and Pricing American Options by San-Lin Chung, Pai-Ta Shih :: SSRN

Review of Financial Studies 9, —] binomial Black-Scholes method with Richardson extrapolation BBSR. The accuracy of the SHP method for the calculation of deltas and gammas is especially notable.

Moreover, when the stock price changes, the recalculation of the prices and hedge ratios of the American options under the SHP method is quick because there is no need to solve the static hedge portfolio again. Finally, our static hedging approach also provides an intuitive derivation of the early exercise boundary near expiration.

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Forgotten username or password? Sign in via your institution OpenAthens Other institution Recent Institutions. Sign in using your ScienceDirect credentials Username. JavaScript is disabled on your browser. Please enable JavaScript to use all the features on this page. Static hedging and pricing American options. Author links open the author workspace. Opens the author workspace Pai-Ta Shih. Opens the author workspace Opens the author workspace Department of Finance, National Taiwan University, No.

Abstract This paper utilizes the static hedge portfolio SHP approach of Derman et al. Keywords American option pricing. Check if you have access through your login credentials or your institution.

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