On the solution of complementarity problems arising in American options pricing
On the solution of complementarity problems arising in American options pricing
Abstract In the Black–Scholes–Merton model, as well as in more general stochastic models in finance, the price of an American option solves a parabolic variational inequality. When the variational inequality is discretized, one obtains a linear complementarity problem (LCP) that must be solved at each time step. This paper presents …