On a free boundary problem for an American put option under the CEV process
AbstractWe consider an American put option under the CEV process. This corresponds to a free boundary problem for a PDE. We show that this free bondary satisfies a nonlinear integral equation, and analyze it in the limit of small $\rho$ = $2r/ \sigma^2$, where $r$ is the interest rate and $\sigma$ is the volatility. We use perturbation methods to find that the free boundary behaves differently for five ranges of time to expiry.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1009.2973.
Date of creation: Sep 2010
Date of revision: Sep 2010
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-25 (All new papers)
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