C O L L O Q U I U M
Valuation and exercise boundaries of
American barrier and lookback options
Professor Tze Leung Lai
Statistics Department,
C.V. Starr Professor, HKU
Abstract
We first present a relatively simple method for the numerical solution of optimal stopping problems associated with American path-dependent options, yielding benchmark values for American barrier or lookback puts and calls. By decomposing an American barrier or lookback option price as the sum of the corresponding European option prices, which has a closed-form expression, and the early exercise premium, which can be expressed as an integral whose integrand is an explicit function of the exercise boundary, we develop fast and accurate approximations to the option prices and hedge parameters. In this connection we also give a brief review of
(i) optimal
stopping theory and its connection to free boundary problems in partial
differential equations, and
(ii) options theory and equivalent martingale measures.
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Date: |
July 12, 2001 (Thursday) |
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Time: |
4:00 - 5:00pm |
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Place: |
Room 517, Meng Wah Complex |
Tea at 3:30pm Room 516, Meng Wah
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All are welcome |
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