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Exercise regions of American options on several assets

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  • Stephane Villeneuve

    ()
    (Equipe d'Analyse et de Math\' ematiques AppliquÊes, UniversitÊ de Marne-la-VallÊe, 2 rue de la Butte Verte, F-93166 Noisy-le-Grand Cedex, France Manuscript)

Abstract

In this paper, we study the nonemptiness and the shape of the exercise region of American options written on several assets. Our contribution is threefold. First, we state an analytic theorem which characterizes the nonemptiness of the exercise region. Second, we study a particular class of payoff functions for which we explicitly identify the shape and the asymptotic behavior near maturity of the associated exercise region. Finally, we present additional results which complement the Broadie and Detemple results concerning the valuation of various types of American options on several assets.

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Bibliographic Info

Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 3 (1999)
Issue (Month): 3 ()
Pages: 295-322

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Handle: RePEc:spr:finsto:v:3:y:1999:i:3:p:295-322

Note: received: June 1997; final version received: July 1998
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Web page: http://www.springerlink.com/content/101164/

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Related research

Keywords: Optimal stopping; free boundary problems; American options;

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Cited by:
  1. Ken-ichi Mitsui & Yoshio Tabata, 2005. "Wavelet based Multi-grid analysis, Wavelet Galerkin method and their Applications to American option: A Survey," Discussion Papers in Economics and Business 05-26, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  2. Louberge, Henri & Villeneuve, Stephane & Chesney, Marc, 2002. "Long-term risk management of nuclear waste: a real options approach," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 157-180, November.
  3. Jeroen Rombouts & Lars Peter Stentoft, 2010. "Multivariate Option Pricing With Time Varying Volatility and Correlations," CIRANO Working Papers 2010s-23, CIRANO.
  4. Masahiko Egami & Tadao Oryu, 2010. "Options on Multiple Assets in a Mean-Reverting Model," Discussion papers e-10-005, Graduate School of Economics Project Center, Kyoto University.
  5. Décamps, Jean-Paul & Mariotti, Thomas & Villeneuve, Stéphane, 2000. "Investment Timing under Incomplete Information," IDEI Working Papers 115, Institut d'Économie Industrielle (IDEI), Toulouse, revised Apr 2004.

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