Authors: Andreas Andrikopoulos
Addresses: University of the Aegean, Department of Financial and Management Engineering, 31 Fostini Str, 82 100 Chios, Greece
Abstract: This paper extends the framework of semi-analytical approximations to the valuation of American options by exploring the performance of competing functional forms for the value of an American option. The value function of the early exercise premium is modelled as a product of two functions, one being a function of time and the other being a function of price. The accuracy of the suggested functional form is verified through numerical tests.
Keywords: American options; quadratic approximation.
International Journal of Financial Markets and Derivatives, 2009 Vol.1 No.1, pp.41 - 48
Published online: 14 Oct 2009 *Full-text access for editors Access for subscribers Purchase this article Comment on this article