Valuation of American Options by the Gradient Projection Method
American options, variational inequalities, gradient projection
Digital Object Identifier (DOI)
We study an equivalent optimization problem with an inequality constraint and boundary conditions, whose necessary condition for optimality is the variational inequality presentation of American options. To solve the problem, we use the gradient projection method, with discretizations both in time and space. We tested the algorithm and compared with the projective successive over-relaxation method.
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Citation / Publisher Attribution
Applied Mathematics and Computation, v. 206, issue 1, p. 380-388
Scholar Commons Citation
Kwon, Changhyun and Friesz, Terry L., "Valuation of American Options by the Gradient Projection Method" (2008). Industrial and Management Systems Engineering Faculty Publications. 18.