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A Numerical Analysis of American Options with Regime Switching

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Abstract

A finite element method and a simple lattice method are proposed for numerical valuation of American options under a regime switching model. Their stability estimates are established. Numerical results are presented to compare our methods and to examine their accuracy for various combinations of parameters. The dependency of early exercise prices and option prices on parameters are also investigated numerically.

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Authors and Affiliations

  1. Department of Mathematical Sciences, University of Nevada, Las Vegas, NV, 89154, USA

    Hongtao Yang

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  1. Hongtao Yang
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Correspondence to Hongtao Yang.

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This research was supported in part by NSF grant DMS–0749676.

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Yang, H. A Numerical Analysis of American Options with Regime Switching. J Sci Comput 44, 69–91 (2010). https://doi.org/10.1007/s10915-010-9365-2

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  • DOI: https://doi.org/10.1007/s10915-010-9365-2

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