Minqiang Li, Li
(2009):
*Analytical Approximations for the Critical Stock Prices of American Options: A Performance Comparison.*

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## Abstract

Many e±cient and accurate analytical methods for pricing American options now exist. However, while they can produce accurate option prices, they often do not give accurate critical stock prices. In this paper, we propose two new analytical approximations for American options based on the quadratic approximation. We compare our methods with existing analytical methods including the quadratic approximations in Barone-Adesi and Whaley (1987) and Barone-Adesi and Elliott (1991), the lower bound approximation in Broadie and Detemple (1996), the tangent approximation in Bunch and Johnson (2000), the Laplace inversion method in Zhu (2006b), and the interpolation method in Li (2008). Both of our methods give much more accurate critical stock prices than all the existing methods above.

Item Type: | MPRA Paper |
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Original Title: | Analytical Approximations for the Critical Stock Prices of American Options: A Performance Comparison |

Language: | English |

Keywords: | American option; Analytical approximation; Critical stock price |

Subjects: | C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing |

Item ID: | 15018 |

Depositing User: | Minqiang Li |

Date Deposited: | 15 Sep 2009 00:07 |

Last Modified: | 26 Sep 2019 09:21 |

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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/15018 |