A policy iteration algorithm for the American put option and free boundary control problems

[摘要] We develop a solution method for American put options that directly employs the policy iteration principle of dynamic programming. The method iteratively improves exercise policies, obtains monotonically increasing value functions and converges quadratically under reasonable assumptions. We present a numerical implementation that exhibits these features. The same principle is also applied to obtain a monotonically improving policy iteration scheme for general free boundary optimal control problems. (C) 2019 Elsevier B.V. All rights reserved.

[发布日期] 2020-08-01

[效力级别]  Proceedings Paper

[关键词] American option;Policy iteration;Free boundary;Black Scholes equation