Stochastics and Finance Seminar: Yihan Zou -- American Real Option Pricing

Speaker: Yihan Zou (University of Glasgow) 

Title: American Real Option Pricing with Stochastic Volatility and Multiple Priors 

Abstract: In this article we study stochastic volatility models in a multiple prior
setting and investigate prices of American options from the perspective of an ambiguity
averse agent.  Using the theory of reflected backward stochastic differential equations
(RBSDEs), we formalize the problem and solve it numerically by a simulation scheme for
RBSDEs.  We also propose an alternative to obtain the American option value without
using the theory of RBSDEs.  We analyze the accuracy of the numerical scheme with single
prior models, of which American options could also be efficiently evaluated by the least
squares Monte Carlo (LSM) approach.  By comparing to the single prior case, we highlight
the importance of the dynamic structure of the agent’s worst case belief.  At last we
explore the applicability of numerical schemes in a setting with multidimensional real
option and ambiguity.  

http://www.maths.usyd.edu.au/u/SemConf/Stochastics_Finance/seminar.html