January 2020
Beginner to intermediate
432 pages
11h 24m
English
Content preview from Python for Finance Cookbook
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How it works...
In Step 2, we once again defined the parameters of the considered American option. For comparison's sake, we took the same values that Longstaff and Schwartz (2001) did. In Step 3, we simulated the stock's evolution using the simulate_gbm function from the previous recipe. Afterward, we calculated the payoff matrix of the put option using the same formula that we used for the European options.
In Step 5, we prepared the matrix of option values over time, which we defined as a matrix of zeros of the same size as the payoff matrix. We filled the last column of the value matrix with the last column of the payoff matrix, as at the last step there are no further computations to carry out – the payoff is equal to the European option. ...
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