Valuation of American options by the gradient projection method

Changhyun Kwon; Terry L. Friesz

doi:10.1016/j.amc.2008.09.024

Valuation of American options by the gradient projection method

Changhyun Kwon, Terry L. Friesz

Research output: Contribution to journal › Article › peer-review

2 Scopus citations

Abstract

We study an equivalent optimization problem with an inequality constraint and boundary conditions, whose necessary condition for optimality is the variational inequality presentation of American options. To solve the problem, we use the gradient projection method, with discretizations both in time and space. We tested the algorithm and compared with the projective successive over-relaxation method.

Original language	English (US)
Pages (from-to)	380-388
Number of pages	9
Journal	Applied Mathematics and Computation
Volume	206
Issue number	1
DOIs	https://doi.org/10.1016/j.amc.2008.09.024
State	Published - Dec 1 2008

All Science Journal Classification (ASJC) codes

Computational Mathematics
Applied Mathematics

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10.1016/j.amc.2008.09.024

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title = "Valuation of American options by the gradient projection method",

abstract = "We study an equivalent optimization problem with an inequality constraint and boundary conditions, whose necessary condition for optimality is the variational inequality presentation of American options. To solve the problem, we use the gradient projection method, with discretizations both in time and space. We tested the algorithm and compared with the projective successive over-relaxation method.",

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AB - We study an equivalent optimization problem with an inequality constraint and boundary conditions, whose necessary condition for optimality is the variational inequality presentation of American options. To solve the problem, we use the gradient projection method, with discretizations both in time and space. We tested the algorithm and compared with the projective successive over-relaxation method.

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Valuation of American options by the gradient projection method

Abstract

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