A Pincer Randomization Method for Valuing American Options

概要

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For European option we can obtain their exact values by using the so-called Black-Scholes formula, whereas there is no explicit exact solution for American counterparts despite that many researchers have attempted to obtain the solution. There have been many approximation methods developed for valuing American options, but they are not inclusive because they have both drawbacks and advantages with respect to their speed and accuracy. This paper develops an interpolation or pincer approximation based on the randomization methods due to Carr (1998) and Kimura (2004), using a pair of lower and upper bounds for option values derived by the Theta property. From numerical comparisons with other approximations, we see that our approximation has sufficient accuracy and efficiency for practical applications. (JEL G12, G13)
北海道大学の論文