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Sensitivity of American Option Prices with Respect to the Variations of Local Volatility |
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PP: 169-172 |
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Author(s) |
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Nasir Rehman,
Sultan Hussain,
Wasim Ul-Haq,
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Abstract |
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| In mathematical finance there are two well known and traditional techniques to deal American options: Solving parabolic
partial differential equations and using the probabilistic approach. In this paper, we use purely probabilistic approach. We consider
standard one-dimensional diffusion model with local volatility that is a function of time and current stock price and where the risk-free
interest rate is constant. We estimate the continuity of American option prices with respect to the corresponding local volatilities. |
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