Title: A new integral equation formulation for pricing American put options

Speaker: Prof. Dr. Song-Ping Zhu, School of Mathematics and Applied Statistics, University of Wollongong, Australia

Time: 16 November 2023 Time 3:00 – 4:00 PM.

Room: M301

Abstract:

In this talk, a completely new integral equation for the price of an American put option as well as its optimal exercise price is presented. Compared to existing integral equations for pricing American options, the newly derived integral equation for pricing American options has some clear advantages over those proposed in the past with the following two unique features:

i) it is in a form of one-dimensional integral, which means that it has a great advantage in terms of substantially increasing the speed with which values of an American option can be numerically computed.

ii) it is in a form free from any discontinuity and singularities associated with the optimal exercise boundary (at least as far as solving the integral equation is concerned); the computational accuracy and efficiency can thus be enhanced.

These rather unique features have led to a significant enhancement of the computational accuracy and efficiency as demonstrated through some examples.