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Parameter estimation approach to the free boundary for the pricing of an american call option
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- Authors
- Joon Myun Cho, Soon Hung Han, Hyun Kim
- Issue Date
- 2006-07
- Citation
- Computer-Aided Design, v.38, no.7, pp.713-725
- ISSN
- 0010-4485
- Publisher
- Elsevier
- Language
- English
- Type
- Journal Article
- Abstract
- In this paper, we consider a free boundary problem which arises in the pricing of an American call option. The free boundary represents the optimal exercise price as a function of time before a maturity date. We are developing a parameter estimation technique to obtain both the optimal exercise curve of an American call option and its price. For the numerical solution of a forward problem, a time marching finite element method is adopted. Numerical experiment shows the convergence property of the approximation scheme. © 2006 Elsevier Ltd.