Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-15T09:37:28.106Z Has data issue: false hasContentIssue false
  • English
  • Français

The Use of the Control Variate Technique in Option Pricing

Published online by Cambridge University Press:  06 April 2009

John Hull  and
Alan White
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper presents a generalized version of the lattice approach to pricing options. It shows how the control variate technique can produce significant improvements in the efficiency of the approach. The control variate technique is illustrated using American puts on dividend and nondividend paying stocks.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 23 , Issue 3 , September 1988 , pp. 237 - 251
Copyright
Copyright © School of Business Administration, University of Washington 1988

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Barone-Adesi, G., and Whaley, R. E.. “Efficient Analytic Approximation of American Option Values.” Journal of Finance, 42 (06 1987), 301–320.Google Scholar
Bellman, R., and Dreyfus, S.. Applied Dynamic Programming. Princeton Univ. Press (1962).CrossRefGoogle ScholarPubMed
Black, F., and Scholes, M.. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, 81 (05–06 1973), 637–659.CrossRefGoogle Scholar
Blomeyer, E. C. “An Analytic Approximation for the American Put Price for Options on Stocks with Dividends.” Journal of Financial and Quantitative Analysis, 21 (06 1986), 229–233.CrossRefGoogle Scholar
Boyle, P. P. “Options: a Monte Carlo Approach.” Journal of Financial Economics, 4 (05 1977), 323–338.Google Scholar
Boyle, P. P. “Option Valuation using a Three Jump Process.” International Options Journal, 3 (1986), 7–12.Google Scholar
Boyle, P. P. “A Lattice Framework for Option Pricing with Two State Variables.” Journal of Financial and Quantitative Analysis, 23 (03 1988), 1–12.Google Scholar
Brennan, M. J., and Schwartz, E. S.. “A Continuous Time Approach to the Pricing of Bonds.” Journal of Banking and Finance, 3 (04 1979), 133–155.CrossRefGoogle Scholar
Courtadon, G. “A More Accurate Finite Difference Approximation for the Value of Options.” Journal of Financial and Quantitative Analysis, 17 (12 1982), 697–703.Google Scholar
Cox, J. C.; Ingersoll, J. E.; and Ross, S. A.. “An Intertemporal General Equilibrium Model of Asset Prices.” Econometrica, 53 (03 1985), 363–384.Google Scholar
Cox, J. C., and Rubinstein, M.. Options Market. Englewood Cliffs, N.J.: Prentice-Hall (1984).Google Scholar
Cox, J. C.; Ross, S. A.; and Rubinstein, M.. “Option Pricing: A Simplified Approach.” Journal of Financial Economics, 7 (09 1979), 229–263.CrossRefGoogle Scholar
Geske, R., and Johnson, H. E.. “The American Put Option Valued Analytically.” Journal of Finance, 39 (12 1984), 1511–1524.CrossRefGoogle Scholar
Geske, R.; and Shastri, K.. “Valuation by Approximation: A Comparison of Alternative Option Valuation Techniques.” Journal of Financial and Quantitative Analysis, 20 (03 1985), 45–71.CrossRefGoogle Scholar
Hull, J.Options, Futures and other Derivative Securities. Englewood Cliffs, N.J.: Prentice-Hall (forthcoming 1988).Google Scholar
Hull, J.; and White, A.. “The Pricing of Options on Assets with Stochastic Volatilities.” Journal of Finance, 42 (06 1987), 281–300.CrossRefGoogle Scholar
Hull, J.; and White, A.. “An Analysis of the Bias Caused by a Stochastic Volatility in Option Pricing.” Advances in Futures and Options Research (forthcoming 1988).Google Scholar
Johnson, H. E. “An Analytic Approximation to the American Put Price.” Journal of Financial and Quantitative Analysis, 18 (03 1983), 141–148.Google Scholar
Johnson, H. E.; and Shanno, D.. “Option Pricing when the Variance is Changing.” Journal of Financial and Quantitative Analysis, 22 (06 1987), 143–151.Google Scholar
Macmillan, L. “Analytic Approximation for the American Put Option.” Advances in Futures and Options Research, 1 (1986).Google Scholar
Omberg, E. “The Valuation of American Put Options with Exponential Exercise Policies.” Advances in Futures and Options Research, 2 (1987a).Google Scholar
Omberg, E. “A Note on the Convergence of Binomial Pricing and Compound Option Models.” Journal of Finance, 42 (06 1987b), 463–470.Google Scholar
Parkinson, M. “Option Pricing: the American Put.” Journal of Business, 50 (01 1977), 21–36.Google Scholar
Rubinstein, M. “Displaced Diffusion Option Pricing.” Journal of Finance, 38 (03 1983), 213–217.Google Scholar
Schwartz, E. S. “The Valuation of Warrants: Implementing a New Approach.” Journal of Financial Economics, 4 (08 1977), 79–93.CrossRefGoogle Scholar