Pricing American options on dividend-paying stocks and estimating the Greek letters using Leisen-Reimer binomial trees

Nan Zhang, Kaiyu Wan, Eng Gee Lim, Ka Lok Man

Research output: Chapter in Book or Report/Conference proceedingConference Proceedingpeer-review

Abstract

We present out work on computing the prices of American call and put options and the values of their Greek letters. The underlying stocks of the options are assumed to pay out cash dividends. For calculating option prices and their Greek letters we use the Leisen-Reimer binomial method. Through experiments we demonstrate that it converges both faster and more smoothly than the Cox-Ross-Rubinstein binomial method. We also present plots for the Greek letters calculated from American call and put options on non-dividend paying stocks. The calculation of the Greek letters with the Leisen-Reimer binomial method is explained.

Original languageEnglish
Title of host publicationGrid and Pervasive Computing - 8th International Conference, GPC 2013 and Colocated Workshops, Proceedings
Pages676-685
Number of pages10
DOIs
Publication statusPublished - 2013
Event8th International Conference on Grid and Pervasive Computing, GPC 2013 - Seoul, Korea, Republic of
Duration: 9 May 201311 May 2013

Publication series

NameLecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Volume7861 LNCS
ISSN (Print)0302-9743
ISSN (Electronic)1611-3349

Conference

Conference8th International Conference on Grid and Pervasive Computing, GPC 2013
Country/TerritoryKorea, Republic of
CitySeoul
Period9/05/1311/05/13

Keywords

  • American options
  • Dividend-paying stocks
  • Greek letters estimation
  • Leisen-Reimer binomial tree
  • Option pricing

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