Finite Element Error Estimates for a Nonlocal Problem in American Option Valuation

Based on new exact formulations of American option problems on bounded domains, error estimates are established for finite element approximations of American option prices under admissible regularity. Some numerical results are also presented.

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Bibliographic Details
Published in:SIAM journal on numerical analysis 2002, Vol.39 (3), p.834-857
Main Authors: Allegretto, Walter, Lin, Yanping, Yang, Hongtao
Format: Article
Language:English
Subjects:
American option
Applied sciences
Approximation
Boundary conditions
Call options
Cauchy Schwarz inequality
Commodity options
Dividends
Estimates
Exact sciences and technology
Finite element method
Inequality
Interest rates
Mathematics
Monte Carlo simulation
Numerical analysis
Numerical analysis. Scientific computation
Numerical methods in mathematical programming, optimization and calculus of variations
Numerical methods in optimization and calculus of variations
Operational research and scientific management
Operational research. Management science
Optimization. Search problems
Partial differential equations, initial value problems and time-dependant initial-boundary value problems
Put & call options
Put options
Sciences and techniques of general use
Securities prices
Strike prices
Valuation
Variational inequalities
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Description
Summary:Based on new exact formulations of American option problems on bounded domains, error estimates are established for finite element approximations of American option prices under admissible regularity. Some numerical results are also presented.
ISSN:0036-1429
1095-7170
DOI:10.1137/S0036142900370137