[HN Gopher] Pricing Americans with finite-difference
       ___________________________________________________________________
        
       Pricing Americans with finite-difference
        
       Author : gituliar
       Score  : 16 points
       Date   : 2023-12-21 12:55 UTC (1 days ago)
        
 (HTM) web link (tastyhedge.com)
 (TXT) w3m dump (tastyhedge.com)
        
       | esafak wrote:
       | I'd rename "Americans" to "American options" for clarity.
        
       | hiAndrewQuinn wrote:
       | "Pricing American options is an open problem in the quantitative
       | finance. It has no closed form solution similar to the Black-
       | Scholes formula for European options."
       | 
       | I'm fascinated by this. Why not? Is it some kind of regulation
       | thing?
        
         | Sniffnoy wrote:
         | I think you've misunderstood the terminology a bit. "European
         | options" and "American options" don't mean "options in Europe"
         | and "options in America"; they're just names for two different
         | styles of options. I assume there is some real geographic
         | origin to the naming convention, but I'm pretty sure both exist
         | in both places.
         | 
         | Other geographic naming styles for options are definitely more
         | arbitrary; Asian options are called that simply because they
         | were invented in Tokyo, for instance, rather than necessarily
         | being particularly common in Asia. Meanwhile Bermuda and Canary
         | options are called that because they're somewhere inbetween
         | American and European options in terms of how they work; they
         | have no real connection to Bermuda or the Canary islands.
        
         | leplen wrote:
         | American options can be exercised at any time at the investor's
         | discretion. This means the instrument has a maximum duration,
         | but the actual duration is up to choice of the option holder,
         | which you can't model with an equation.
        
           | auc wrote:
           | 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.
        
       ___________________________________________________________________
       (page generated 2023-12-22 23:00 UTC)