Penalty approach to a nonlinear obstacle problem governing American put option valuation under transaction costs

Penalty approach to a nonlinear obstacle problem governing American put option valuation under transaction costs

We propose a penalty method for a finite-dimensional nonlinear complementarity problem (NCP) arising from the discretization of the infinite-dimensional free boundary/obstacle problem governing the valuation of American options under transaction costs. In this method, the NCP is approximated by a sy...

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Bibliographic Details
Main Authors: Lesmana, D., Wang, Song
Format: Journal Article
Published: Elsevier 2015
Subjects:
American option pricing
Convergence
Nonlinear Black–Scholes operator
Nonlinear complementarity problem
Penalty method
Obstacle problem
Online Access:http://hdl.handle.net/20.500.11937/46891

Internet

http://hdl.handle.net/20.500.11937/46891

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