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Valuation Of American Options And Employee Stock Options, Qianru (Jennifer) Shang
Valuation Of American Options And Employee Stock Options, Qianru (Jennifer) Shang
Doctoral
Options play an important role in the financial world and are actively traded with huge trading volume. Most of the options traded on exchanges are American options. Spanning over a few decades, the American option pricing problem continues to intrigue scholars and practitioners in finance. The employee stock options (ESOs), a variant of American options, has been increasingly popular for firms to compensate, motivate and retain employees. ESOs importantly do not trade in markets nevertheless fair value must be determined – often by accountants. Unique features of ESOs however complicate the valuation. Our research, consisting of three papers, focuses on …
American Option Pricing: Optimal Lattice Models And Multidimensional Efficiency Tests, Qianru Shang, Brian Byrne
American Option Pricing: Optimal Lattice Models And Multidimensional Efficiency Tests, Qianru Shang, Brian Byrne
Articles
We introduce a set of lattice techniques to the Leisen‐Reimer and Tian binomial models with a view to accelerating computation time and improving accuracy of American Option valuation. A level of accuracy and efficiency combined can be achieved that surpass commonly used analytical analogues. We compare these efficient lattice models with analytical formulae for pricing different groups of options according to the deepness of American quality and moneyness. Our results reveal that counter to received wisdom, lattices constructs produce greater speed and accuracy for all option categories relative to the best performing closed form American analogues.