Variational formulation of American option prices in the Heston Model

Abstract : We give an analytical characterization of the price function of an American option in Heston-type models. Our approach is based on variational inequalities and extends recent results of Daskalopoulos and Feehan (2011). We study the existence and uniqueness of a weak solution of the associated degenerate parabolic obstacle problem. Then, we use suitable estimates on the joint distribution of the log-price process and the volatility process in order to characterize the analytical weak solution as the solution to the optimal stopping problem. We also rely on semi-group techniques and on the affine property of the model.
Type de document :
Pré-publication, Document de travail
2018
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https://hal-upec-upem.archives-ouvertes.fr/hal-01649496
Contributeur : Damien Lamberton <>
Soumis le : lundi 10 décembre 2018 - 14:44:48
Dernière modification le : mercredi 12 décembre 2018 - 08:58:40

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  • HAL Id : hal-01649496, version 2
  • ARXIV : 1711.11311

Citation

Damien Lamberton, Giulia Terenzi. Variational formulation of American option prices in the Heston Model. 2018. 〈hal-01649496v2〉

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