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Contribution Details
| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | On the Diffusion Operator Integral Method and the Pricing of American Options |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 59 |
| Date | 2019 |
| Abstract Text | We investigate the Diffusion Operator Integral method initially proposed by Heath and Platen, allowing for variance reduced estimation of option prices using approximating payoffs- and model dynamics. We combine the method with the Longstaff-Schwartz algorithm for approximating optimal stopping time solutions in pricing problems for American options in an extension of the Heston stochastic volatility model. A generalization of Black-Scholes is used as an approximating model within this framework to capture the deterministic mean reversion components in this extended Heston model. We confirm the dramatic variance reduction results from previous research for our extension to the more complex stochastic volatility setting, while also extending applications of the method to American options. |
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