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Nonparametric American option pricing
Author(s) -
Alcock Jamie,
Carmichael Trent
Publication year - 2008
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20335
Subject(s) - nonparametric statistics , valuation of options , econometrics , black–scholes model , stock price , economics , put option , metric (unit) , variety (cybernetics) , moneyness , mathematical economics , financial economics , mathematics , statistics , series (stratigraphy) , operations management , volatility (finance) , paleontology , biology
A nonparametric method is introduced to accurately price American‐style contingent claims. This method uses only historical stock price data, not option price data, to generate the American option price. The accuracy of this method is tested in a controlled experimental environment under both Black, F and Scholes, M (1973) and Heston, S (1993) assumptions, and an error‐metric analysis is performed. These numerical experiments demonstrate that this method is an accurate and precise method of pricing American options under a variety of market conditions. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:717–748, 2008