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1999•Journal of Shaanxi Institute of TechnologyRequires access

A study on the pricing of american option

Jinxian Chen

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Abstract

The path-dependent characteristic of American option results in it's pricing complexity and causes the pricing differences from American call option and put option.Based upon the analysis of American option's characteristics and valuing origin, this paper derives the pricing models of American call option and put option using Black-Scholes pricing model.Further more,the influences from the cash flow before American option's expiration are discussed at the end of the paper.

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What this paper is about

The path-dependent characteristic of American option results in it's pricing complexity and causes the pricing differences from American call option and put option.Based upon the analysis of American option's characteristics and valuing origin, this paper derives the pricing models of American call option and put option using Black-Scholes pricing model.Further more,the influences from the cash flow before American option's expiration are discussed at the end of the paper.

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Available abstract

The path-dependent characteristic of American option results in it's pricing complexity and causes the pricing differences from American call option and put option.Based upon the analysis of American option's characteristics and valuing origin, this paper derives the pricing models of American call option and put option using Black-Scholes pricing model.Further more,the influences from the cash flow before American option's expiration are discussed at the end of the paper.

Key concepts: Monte Carlo methods for option pricing, Valuation of options, Asian option, Finite difference methods for option pricing, Exotic option, Black–Scholes model, Expiration, Call option

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