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Optimal Exercise for Derivative Securities

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  • Jérôme Detemple

    (School of Management, Boston University, Boston, Massachusetts 02215)

Abstract

This article reviews the literature on American-style derivatives. The presentation stresses some of the major developments in the field. The focus is on the determination of optimal exercise policies and the structure of derivatives' prices. Illustrative examples highlight the complexity of the optimal exercise decision.

Suggested Citation

  • Jérôme Detemple, 2014. "Optimal Exercise for Derivative Securities," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 459-487, December.
    • Handle: RePEc:anr:refeco:v:6:y:2014:p:459-487
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110613-034241
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    References listed on IDEAS

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    Cited by:

    1. Marzia De Donno & Zbigniew Palmowski & Joanna Tumilewicz, 2020. "Double continuation regions for American and Swing options with negative discount rate in Lévy models," Mathematical Finance, Wiley Blackwell, vol. 30(1), pages 196-227, January.
    2. Francesco Rotondi, 2019. "American Options on High Dividend Securities: A Numerical Investigation," Risks, MDPI, vol. 7(2), pages 1-20, May.
    3. Li, Chenxu & Ye, Yongxin, 2019. "Pricing and Exercising American Options: an Asymptotic Expansion Approach," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    4. Anna Battauz & Francesco Rotondi, 2022. "American options and stochastic interest rates," Computational Management Science, Springer, vol. 19(4), pages 567-604, October.
    5. Jonas Al-Hadad & Zbigniew Palmowski, 2020. "Perpetual American options with asset-dependent discounting," Papers 2007.09419, arXiv.org, revised Jan 2021.
    6. Battauz, Anna & De Donno, Marzia & Sbuelz, Alessandro, 2022. "On the exercise of American quanto options," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    derivatives; options; American-style; valuation; exercise region; exercise boundaries;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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