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American Capped Call Options on Dividend-Paying Assets

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Author Info
Broadie, Mark
Detemple, Jerome
Abstract

This article addresses the problem of valuing American call options with caps on dividend paying assets. Since early exercise is allowed, the valuation problem requires the determination of optimal exercise policies. Options with two types of caps are analyzed: constant caps and caps with a constant growth rate. For constant caps, it is optimal to exercise at the first time at which the underlying asset's price equals or exceeds the minimum of the cap and the optimal exercise boundary for the corresponding uncapped option. For caps that grow at a constant rate, the optimal exercise strategy can be specified by three endogenous parameters. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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File URL: http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/08939454
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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 8 (1995)
Issue (Month): 1 ()
Pages: 161-91
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:oup:rfinst:v:8:y:1995:i:1:p:161-91

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  1. Jérôme B. Detemple, 1999. "American Options: Symmetry Properties," CIRANO Working Papers 99s-45, CIRANO. [Downloadable!]
  2. Mark Broadie & Jérôme B. Detemple, 1996. "American Options on Dividend-Paying Assets," CIRANO Working Papers 96s-16, CIRANO. [Downloadable!]
  3. B. Gao J. Huang, . "The Valuation of American Barrier Options Using the Decomposition Technique," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-002, New York University, Leonard N. Stern School of Business-. [Downloadable!]
  4. Mark Broadie & Jérôme B. Detemple, 1996. "Recent Advances in Numerical Methods for Pricing Derivative Securities," CIRANO Working Papers 96s-17, CIRANO. [Downloadable!]
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This page was last updated on 2009-11-28.

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