A Stochastic Approximation Algorithm for American Lookback Put Options

作者：Zhang, Zhenhua^*; Yin, G.; Liang, Zhian

来源：Stochastic Analysis and Applications, 2011, 29(2): 332-351.

DOI：10.1080/07362994.2010.503473

• Lookback option
• Mollifier
• Regime-switching diffusion
• Stochastic approximation
• Weak convergence

This work is concerned with pricing American fixed lookback put options. The underlying asset is modeled as a switching diffusion process, where the switching is represented by a continuous-time Markov chain. The switching diffusion delineates stochastic volatility effectively. Nevertheless, this formulation together with the lookback style put option makes it virtually impossible to find closed-form solutions. As a viable alternative, a stochastic approximation algorithm is suggested. The convergence and rates of convergence of the algorithm are established.

• 出版日期2011
• 单位上海财经大学