FINITE DIFFERENCE APPROXIMATION FOR PRICING THE AMERICAN LOOKBACK OPTION |
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| Authors: | Tie Zhang |
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| Institution: | Tie Zhang Department of Mathematics,School of Information Science , Engineering,Northeastern University,Shenyang 110004,China Shuhua Zhang Research Center for Mathematics , Economics,Tianjin University of Finance , Economics,Tianjin 300222,China Danmei Zhu Department of Mathematics,China |
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| Abstract: | In this paper we are concerned with the pricing of lookback options with American type constrains. Based on the differential linear complementary formula associated with the pricing problem, an implicit difference scheme is constructed and analyzed. We show that there exists a unique difference solution which is unconditionally stable. Using the notion of viscosity solutions, we also prove that the finite difference solution converges uniformly to the viscosity solution of the continuous problem. Furthermor... |
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| Keywords: | American lookback options Finite difference approximation Stability and convergence Error estimates |
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