Pricing methods for American options
Master Thesis
2003
Permanent link to this Item
Authors
Journal Title
Link to Journal
Journal ISSN
Volume Title
Publisher
Publisher
University of Cape Town
Department
Faculty
License
Series
Abstract
This thesis is about the comparison of Pricing models for the valuation of American Options. Three classes of numerical approaches are considered. These are Lattice Methods, Analytic Approximations and Monte Carlo Simulation. Methods will be contrasted in terms of accuracy and speed of the computed American option price. One particular method utilises regression when estimating the American option price. For this approach the impact of outliers and multicollinearity is examined and alternative regression models fitted. Monte Carlo Simulation is implemented to calculate early exercise probabilities of American options in the South African market. Results are compared for both call and put options. A test set of 3550 options is simulated with parameters mirroring the South African economy. On this set, the accuracy of all methods is assessed relative to a benchmark price, which is computed by a convergent lattice approach. Finally, American Symmetry is used to evaluate both put and call options.
Description
Bibliography: leaves 89-94.
Reference:
Duvel, H. 2003. Pricing methods for American options. University of Cape Town.