Article ID: | iaor20119934 |
Volume: | 50 |
Issue: | 2 |
Start Page Number: | 263 |
End Page Number: | 286 |
Publication Date: | Oct 2011 |
Journal: | Computational Optimization and Applications |
Authors: | Fukushima Masao, Hamatani Kenji |
Keywords: | finance & banking, stochastic processes, optimization |
We consider the problem of pricing American options with uncertain volatility and propose two deterministic formulations based on the expected value method and the expected residual minimization method for a stochastic complementarity problem. We give sufficient conditions that ensure the existence of a solution of those deterministic formulations. Furthermore we show numerical results and discuss the usefulness of the proposed approach.