Randomization and the American Put

Preprint

preprint

Published in RePEc

Abstract

While American calls on non-dividend paying stocks may be valued as European, there is no completely explicit exact solution for the values of American puts. We introduce a novel technique called randomization to value American puts and calls on dividend-paying stocks. This technique yields a new semi-explicit approximation for American option values in the Black Scholes model. Numerical results indicate that the approximation is both accurate and computationally efficient.

Keywords

CALLS ON DIVIDEND
NOVEL TECHNIQUE
DIVIDEND PAYING
AMERICAN CALLS
VALUE AMERICAN
PAYING STOCKS
APPROXIMATION
AMERICAN PUTS
STOCKS

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