文章基本信息

标题：Pricing American Options with a Non-Constant Penalty Parameter
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作者：Clevenhaus, Anna ; Ehrhardt, Matthias ; Günther, Michael 等
期刊名称：Journal of Risk and Financial Management
印刷版ISSN：1911-8074
出版年度：2020
卷号：13
期号：6
页码：1-7
DOI：10.3390/jrfm13060124
语种：English
出版社：MDPI, Open Access Journal
摘要：As the American early exercise results in a free boundary problem, in this article weadd a penalty term to obtain a partial differential equation, and we also focus on an improveddefinition of the penalty term for American options. We replace the constant penalty parameter witha time-dependent function. The novelty and advantage of our approach consists in introducingabounded, time-dependentpenaltyfunction, enablingustoconstructanefficient, stable,andadaptivenumericalapproximationscheme, whileincontrast, theexistingstandardapproachtothepenalisationof the American put option-free boundary problem involves a constant penalty parameter. To gaininsight into the accuracy of our proposed extension, we compare the solution of the extension tostandard reference solutions from the literature. This illustrates the improvement of using a penaltyfunction instead of a penalising constant.
关键词：American Options; PDE option pricing; Penalty term; projected SOR; penalization strategy