Department of Applied Mathematics & Physics, Kyoto University
Technical Report 2010-004 (February 19, 2010)
Pricing American Options with Uncertain Volatility through Stochastic Linear Complementarity Models
by Kenji Hamatani and Masao Fukushima
We consider the problem of pricing American options
with uncertain volatility
and propose two deterministic formulations
based on the expected value method
and the expected residual minimization method
for a stochastic complementarity problem.
We give sufficient conditions that ensure the existence
of a solution of those deterministic formulations.
Furthermore we show numerical results and discuss
the usefulness of the proposed approach.