Re:Pricing Americans with Finite-Difference
by ravetcofx on Saturday December 23, 2023 @02:18AM
(#38742315)
Maybe Think of American options like concert tickets that you can use anytime before the show. Unlike tickets that only work on the day of the event (like European options), these tickets (American options) can be used whenever you want. Figuring out their price is tricky because you need to consider when it's best to use them, making it harder to have a simple formula like we do for tickets with fixed dates.
Re:Pricing Americans with Finite-Difference
by Sniffnoy on Saturday December 23, 2023 @02:34AM
(#38742385)
Sorry, did you mean to reply to a different comment? This doesn't appear related to what I was discussing (the etymology of the terms; I'm aware of what they mean).
Re:Pricing Americans with Finite-Difference
by Reviving1514 on Saturday December 23, 2023 @11:04AM
(#38745197)
This is really well researched and I enjoyed following along, thank you.
Well, if nothing else, it should at least be easy to check that (even if they existed elsewhere earlier) Samuelson thought he was independently inventing these terms, right? Except, in the paper where he supposedly invented these terms [3], he introduces them as follows:
> However, the simple integral (24) does give a solution under all cases to the simpler case of a warrant that can be exercised only at the end of the period T. We might call this a "European warrant" by analogy with the "European call," which, unlike the American call that is exercisable at any time from now to T, is exercisable only at a specified terminal date.
Note that nowhere previously does the paper make use of the "American" or "European" terminology, so it sounds like "European call" and "American call" here are references to pre-existing terminology -- suggesting that he didn't invent it after all! Huh.
Well, that got murkier than I expected. Don't really want to investigate further right now, but sounds like he didn't actually invent the terminology after all...?
[1] https://www.macroption.com/american-vs-european-options/
[2] https://www.youtube.com/watch?v=RbIzwTGN3Yc&t=11m
[3] https://link.springer.com/chapter/10.1007/978-3-319-22237-0_...