Pricing and Hedging American Options: A Recursive Integration Method
- 1 January 1996
- journal article
- research article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 9 (1) , 277-300
- https://doi.org/10.1093/rfs/9.1.277
Abstract
In this article, we present a new method for pricing and hedging American options along with an efficient implementation procedure. The proposed method is efficient and accurate in computing both option values and various option hedge parameters. We demonstrate the computational accuracy and efficiency of this numerical procedure in relation to other competing approaches. We also suggest how the method can be applied to the case of any American option for which a closed-form solution exists for the corresponding European option.Keywords
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