New valuation method improves pricing accuracy for American options with GARCH volatility.
The article discusses how to value American options when the market's volatility follows a specific pattern. Instead of using complex simulations, the researchers suggest a simpler method called Rubinstein's Edgeworth binomial tree. This method allows for a more accurate calibration of the pricing model. By testing this approach on American index and equity options, the researchers found that it outperformed other methods.