Re:Pricing Americans with Finite-Difference
by auc on Friday December 22, 2023 @05:42PM
(#38739449)
This is subtly incorrect.
An American option should be priced assuming that the option is optimally exercised, otherwise this would create a soft arbitrage opportunity. The difficulty is determining when the option is optimally exercised because it depends on several potentially unknown and difficult to model factors.
An American option should be priced assuming that the option is optimally exercised, otherwise this would create a soft arbitrage opportunity. The difficulty is determining when the option is optimally exercised because it depends on several potentially unknown and difficult to model factors.