Optimal exercise boundary for an American put option
AbstractThe optimal exercise boundary near the expiration time is determined for an American put option. It is obtained by using Green's theorem to convert the boundary value problem for the price of the option into an integral equation for the optimal exercise boundary. This integral equation is solved asymptotically for small values of the time to expiration. The leading term in the asymptotic solution is the result of Barles et al. An asymptotic solution for the option price is obtained also.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Mathematical Finance.
Volume (Year): 5 (1998)
Issue (Month): 2 ()
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- Kim, In Joon, 1990. "The Analytic Valuation of American Options," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 547-72.
- Tomas Bokes & Daniel Sevcovic, 2009. "Early exercise boundary for American type of floating strike Asian option and its numerical approximation," Papers 0912.1321, arXiv.org.
- Daniel Sevcovic, 2007. "An iterative algorithm for evaluating approximations to the optimal exercise boundary for a nonlinear Black-Scholes equation," Papers 0710.5301, arXiv.org.
- Roland Mallier & Ghada Alobaidi, 2000. "Laplace transforms and American options," Applied Mathematical Finance, Taylor and Francis Journals, vol. 7(4), pages 241-256.
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