Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/33934
Title: Evaluating American put options on zero-coupon bonds by a penalty method
Authors: Zhou, HJ
Yiu, KFC 
Li, LK
Keywords: American put option
Finite volume method
Linear complementarity problem
Power penalty method
Zero-coupon bond
Issue Date: 2011
Publisher: North-Holland
Source: Journal of computational and applied mathematics, 2011, v. 235, no. 13, p. 3921-3931 How to cite?
Journal: Journal of computational and applied mathematics 
Abstract: In this paper, American put options on zero-coupon bonds are priced under a single factor model of short-term rate. The linear complementarity problem of the option value is solved numerically by a penalty method, by which the problem is transformed into a nonlinear PDE by adding a power penalty term. The solution of the penalized problem converges to that of the original problem. A numerical scheme is established by using the finite volume method and the corresponding stability and convergence are discussed. Numerical results are presented to show the usefulness of the method.
URI: http://hdl.handle.net/10397/33934
ISSN: 0377-0427
EISSN: 1879-1778
DOI: 10.1016/j.cam.2011.01.038
Appears in Collections:Conference Paper

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