Journal of Risk
ISSN:
1465-1211 (print)
1755-2842 (online)
Editor-in-chief: Farid AitSahlia
Valuing American options in the presence of user-defined smiles and time-dependent volatility: scenario analysis, model stress and lower-bound pricing applications
Peter Jäckel, Riccardo Rebonato
Abstract
ABSTRACT
A method is presented for the valuation of American style options as a function of an exogenously assigned future implied volatility surface evolution. Subject to this specification, this is done independently of any assumptions about a stochastic process of the underlying asset. The scope and applicability of the method are analyzed in detail. The approach should have applications in risk management, and to estimate a tight lower bound price for the American option.
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Copyright Infopro Digital Limited. All rights reserved.
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