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| Author: | Medvedev, A. Scaillet, O. |
| Title: | Pricing American options under stochastic volatility and stochastic interest rates |
| Journal: | Journal of Financial Economics
2010 : OCT, VOL. 98:1, p. 145-159 |
| Index terms: | America options pricing volatility interest rates models |
| Language: | eng |
| Abstract: | This paper presents a new analytical approach for pricing of American options. Using an explicit and intuitive proxy for the exercise rule, tractable pricing formulas are derived using a short-maturity asymptotic expansion. This method can accurately price options with time-to-maturity up to several years, depending on model parameters. The main advantage of this approach compared with the existing ones is in its straightforward extension to models with stochastic volatility and stochastic interest rates. |
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