The Adaptive Mesh Model: a new approach to efficient option pricing

• 成果类型: Article
• 署名作者: Figlewski, S; Gao, B
• 署名单位: New York University; University of North Carolina; University of North Carolina Chapel Hill
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(99)00024-0
• 发表日期: 1999
• 页码: 313-351
• 关键词: adaptive mesh; Option valuation; lattice models; barrier options; numerical valuation techniques

摘要

Most derivative securities must be priced by numerical techniques. These models contain distribution error and nonlinearity error. The Adaptive Mesh Model (AMM) sharply reduces nonlinearity error by grafting one or more small sections of fine high-resolution lattice onto a tree with coarser time and price steps. Three different AMM structures are presented, one for pricing ordinary options, one for barrier options, and one for computing delta and gamma efficiently. The AMM approach can be adapted to a wide variety of contingent claims. For some common problems, accuracy increases by several orders of magnitude with no increase in execution time. (C) 1999 Elsevier Science S.A. All rights reserved.