Pricing American options with the SABR model

Author

Vellekoop, Michel ; Vlaming, Geeske

Author_Institution

Dept. of Appl. Math., Univ. of Twente, Enschede, Netherlands

fYear

2009

fDate

23-29 May 2009

Firstpage

1

Lastpage

6

Abstract

We introduce a simple and flexible method to price derivative securities on assets with volatilities which are stochastic. As a special case we treat the SABR model in more detail. Our approach is based on the construction of recombining trees using interpolation methods on probability measures, and this makes it very suitable for the application of parallel computing techniques. We show how one can easily incorporate features which are characteristic for practical option pricing problems, such as a term structure of interest, early exercise possibilities and the payment of cash dividends.

Keywords

financial data processing; interpolation; parallel processing; pricing; probability; share prices; trees (mathematics); American option pricing; SABR model; interpolation methods; option pricing problems; parallel computing techniques; price derivative securities; probability measures; recombining trees; Calibration; Distributed computing; Finance; Interpolation; Numerical models; Parallel processing; Partial differential equations; Pricing; Security; Stochastic processes; American Options; Derivative Pricing; Numerical Methods; Stochastic Volatility Models;

fLanguage

English

Publisher

ieee

Conference_Titel

Parallel & Distributed Processing, 2009. IPDPS 2009. IEEE International Symposium on

Conference_Location

Rome

ISSN

1530-2075

Print_ISBN

978-1-4244-3751-1

Electronic_ISBN

1530-2075

Type

conf

DOI

10.1109/IPDPS.2009.5161142

Filename

5161142