Calibration to American Options: Numerical Investigation of the de-Americanization
American options are the reference instruments for the model calibration of a large and important class of single stocks. For this task, a fast and accurate pricing algorithm is indispensable. The literature mainly discusses pricing methods for American options that are based on Monte Carlo, tree and partial differential equation methods. We present an alternative approach that has become popular under the name de-Americanization in the financial industry. The method is easy to implement and enjoys fast run-times. Since it is based on ad hoc simplifications, however, theoretical results guaranteeing reliability are not available. To quantify the resulting methodological risk, we empirically test the performance of the de-Americanization method for calibration. We classify the scenarios in which de-Americanization performs very well. However, we also identify the cases where de-Americanization oversimplifies and can result in large errors.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Measuring Americanization: A Global Quantitative Study of Interest in American Topics on Wikipedia
We conducted a global comparative analysis of the coverage of American topics in different language versions of Wikipedia, using over 90 million Wikidata items and 40 million Wikipedia articles in 58 languages. Our study…
ArticlesEfficient and robust calibration of the Heston option pricing model for American options using an improved Cuckoo Search Algorithm
In this paper an improved Cuckoo Search Algorithm is developed to allow for an efficient and robust calibration of the Heston option pricing model for American options. Calibration of stochastic volatility models like th…
On Calibration Neural Networks for extracting implied information from American options
Extracting implied information, like volatility and/or dividend, from observed option prices is a challenging task when dealing with American options, because of the computational costs needed to solve the corresponding …
BIG-bench Machine LearningEfficient and Accurate Calibration to FX Market Skew with Fully Parameterized Local Volatility Model
When trading American and Asian options in the FX derivatives market, banks must calculate prices using a complex mathematical model. It is often observed that different models produce varying prices for the same exotic …
ManagementPricing American Call Options by the Black-Scholes Equation with a Nonlinear Volatility Function
In this paper we investigate a nonlinear generalization of the Black-Scholes equation for pricing American style call options in which the volatility term may depend on the underlying asset price and the Gamma of the opt…