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Valuation by Approximation: A Comparison of Alternative Option Valuation Techniques

Published online by Cambridge University Press:  06 April 2009

Robert Geske  and
Kuldeep Shastri
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Abstract

The purpose of this paper is to compare a variety of approximation techniques for valuing contingent contracts when analytic solutions do not exist. The comparison is made with respect to the differences in both the approximation theory and the efficiency of the computation algorithms. The focus of the computational comparison is upon binomial and finite difference methods applied to option valuation models with one stochastic variable. However, many of the results would generalize to pricing corporate securities, and also to certain aspects of problems involving multiple stochastic variables.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 20 , Issue 1 , March 1985 , pp. 45 - 71
Copyright
Copyright © School of Business Administration, University of Washington 1985

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