Pricing European and American Installment Options
Publication Name
Mathematics
Abstract
This paper derives accurate and efficient analytic approximations for the prices of both European and American continuous-installment call and put options. The solutions are in the form of series in time-to-expiry with explicit formulae for the coefficients provided. Unlike other solutions for installment options, no Laplace inverses are needed, and there is no need to solve complex, recursive systems or integral equations. The formulae provided fast yield and accurate solutions not just for the prices, but also for the critical boundaries. We also compare the solutions with those obtained using an existing method and show that it surpasses it delivering more correct option prices and critical stock prices.
Open Access Status
This publication may be available as open access
Volume
10
Issue
19
Article Number
3494
Funding Number
RG-21-09-19