Laplace Transform Method for Pricing American CEV Strangles Option with Two Free Boundaries

<div>Values of American Strangles at time <svg height="8.55521pt" id="M393" style="vertical-align:-0.2063904pt" version="1.1" viewbox="-0.0498162 -8.34882 25.736 8.55521" width="25.736pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M324 430H196L233 583L223 592L145 529L120 430H54L29 396L31 388H111L56 126C33 15 54 -12 77 -12C137 -12 214 57 250 95L233 119C208 92 155 59 138 59C126 59 120 70 131 125L186 390L298 394L324 430Z" id="g113-117"></path></g><g transform="matrix(.013,0,0,-0.013,8.065,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path></g><g transform="matrix(.013,0,0,-0.013,19.328,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z" id="g113-49"></path></g></svg> (i.e., <svg height="9.16851pt" id="M394" style="vertical-align:-0.2063904pt" version="1.1" viewbox="-0.0498162 -8.96212 29.6375 9.16851" width="29.6375pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M471 456L444 459C426 433 414 430 388 430C324 430 270 434 216 434C103 434 51 374 23 338L43 317C96 366 146 380 221 375L154 109C149 86 147 68 147 52C147 4 168 -12 197 -12C240 -12 291 25 334 71L320 96C295 75 268 58 252 58C238 58 227 79 238 138C251 211 272 296 292 372C310 372 332 368 350 368C391 368 421 369 434 371C444 388 455 413 471 456Z" id="g113-241"></path></g><g transform="matrix(.013,0,0,-0.013,9.914,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path></g><g transform="matrix(.013,0,0,-0.013,21.177,0)"><path d="M620 675H597C578 656 570 650 541 650H144C112 650 104 653 94 675H72C59 618 42 552 23 493L53 491C71 534 88 564 105 585C124 608 144 615 238 615H290L197 121C182 40 174 34 88 28L82 0H361L367 28C275 34 266 38 281 121L374 615H441C522 615 543 608 553 583C562 560 566 531 565 493L597 494C603 551 612 629 620 675Z" id="g113-85"></path></g></svg>) with <span class="nowrap"><svg height="11.8174pt" id="M395" style="vertical-align:-3.1815pt" version="1.1" viewbox="-0.0498162 -8.6359 35.4974 11.8174" width="35.4974pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M743 650H503L496 622L527 618C563 613 564 603 532 573C449 495 371 431 323 392C301 374 272 355 246 346L280 522C297 609 300 614 379 622L385 650H135L129 622C209 614 215 609 198 522L124 133C106 39 99 35 23 28L17 0H271L277 28C193 35 192 39 208 133L239 316C264 328 280 325 303 288C368 183 435 90 502 0H652L659 28C602 34 584 43 543 94C495 154 403 283 347 369L574 554C634 603 659 612 735 624L743 650Z" id="g113-76"></path></g><g transform="matrix(.0091,0,0,-0.0091,9.23,3.132)"><path d="M389 0V32C297 38 291 46 291 118V635C234 613 175 595 109 583V556L161 554C203 552 207 547 207 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42.2567 11.6399" width="42.2567pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M548 455L523 469C505 448 490 439 461 439C416 439 374 447 316 447C144 447 23 310 23 161C23 47 89 -12 179 -12C312 -12 429 106 429 244C429 303 419 344 368 386L371 388C404 383 440 378 474 378C507 378 530 411 548 455ZM350 274C350 191 308 25 198 25C144 25 108 75 108 157C108 264 170 395 276 395C296 395 320 384 333 360C347 334 350 316 350 274Z" id="g113-240"></path></g><g transform="matrix(.0091,0,0,-0.0091,6.76,3.132)"><path d="M245 635C92 635 37 457 37 312C37 149 91 -12 244 -12C395 -12 449 166 449 312C449 469 395 635 245 635ZM243 598C332 598 358 454 358 312C358 173 334 26 245 26C158 26 128 174 128 313S152 598 243 598Z" id="g50-49"></path></g><g transform="matrix(.013,0,0,-0.013,15.338,0)"><path d="M535 323V373H52V323H535ZM535 138V188H52V138H535Z" id="g117-34"></path></g><g transform="matrix(.013,0,0,-0.013,26.601,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z" id="g113-49"></path></g><g transform="matrix(.013,0,0,-0.013,32.841,0)"><path d="M113 -12C146 -12 170 11 170 46C170 78 146 103 114 103S58 78 58 46C58 11 82 -12 113 -12Z" id="g113-47"></path></g><g transform="matrix(.013,0,0,-0.013,35.805,0)"><path d="M456 178V225H360V632H320C217 496 115 347 20 206V178H280V106C280 40 276 34 189 27V0H445V27C364 34 360 39 360 106V178H456ZM280 225H82C149 335 214 431 278 520H280V225Z" id="g113-53"></path></g></svg>,</span> different values of <span class="nowrap"><svg height="12.7178pt" id="M401" style="vertical-align:-3.42947pt" version="1.1" viewbox="-0.0498162 -9.28833 7.68094 12.7178" width="7.68094pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M558 587C558 666 497 712 432 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533L126 118C111 41 103 34 23 26L17 0H474C489 31 528 124 541 160Z" id="g113-77"></path></g></svg>.</span> The CPU time is about 20s, 22s, and 680s for LTM-GSF, LTM-HCIM, and FDM, respectively.</div>

Discrete Dynamics in Nature and Society

tab1

Table 1

Table 1: Laplace Transform Method for Pricing American CEV Strangles Option with Two Free Boundaries 