Pricing American options
Leonid Kogan
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Pricing American options
by Leonid Kogan
Published
2001
Publisher
Alfred P. Sloan School of Management, Massachusetts Institute of Technology]
Pages
38
Description
We develop a new method for pricing American options. The main practical contribution of this paper is a general algorithm for constructing upper and lower bounds on the true price of the option using any approximation to the option price. We show that our bounds are tight, so that if the initial approximation is close to the true price of the option, the bounds are also guaranteed to be close. We also explicitly characterize the worst-case performance of the pricing bounds. The computation of the lower bound is straightforward and relies on simulating the suboptimal exercise strategy implied by the approximate option price. The upper bound is also computed using Monte Carlo simulation. This is made feasible by the representation of the American option price as a solution of a properly defined dual minimization problem, which is the main theoretical result of this paper. Our algorithm proves to be accurate on a set of sample problems where we price call options on the maximum and the geometric mean of a collection of stocks. These numerical results suggest that our pricing method can be successfully applied to problems of practical interest. Keywords: Asset pricing, dynamic programming, simulation, American option, optimal stopping, duality.
Frequently Asked Questions
How many pages are in Pricing American options?
This edition of Pricing American options has approximately 38 pages. Please note, this is an estimate and the exact page count can vary between hardcover, paperback, and e-book versions.
How long does it take to read Pricing American options?
For most readers, Pricing American options typically takes between 48m and 32m to complete. This is based on the book's length of approximately 9,500 words and common reading speeds.
Here's a detailed breakdown: • Continuous reading at 250 WPM: approximately 38m of focused reading • Casual reading (30 minutes/day): you could finish in roughly 2 days • Estimated word count: 9,500 words
Your individual reading time will vary based on your personal reading pace, the amount of daily reading time, and your familiarity with the subject matter.
What is the word count of Pricing American options?
The estimated word count for Pricing American options is approximately 9,500 words. This figure is calculated using industry-standard methods that consider genre-specific word density patterns, typical formatting and layout characteristics, and standard words-per-page ratios for published books.
This is an approximation — actual word count may vary based on font size, formatting, edition, and the presence of illustrations or charts.
Who is the author of Pricing American options?
Pricing American options was written by Leonid Kogan.
When was Pricing American options published?
The publication date for this specific edition is 2001. The original work may have been published on a different date.