A unified approach to determining the early exercise boundary position at expiry for American style of general class of derivatives
AbstractIn this paper, we present a new method for calculating the limit of early exercise boundary at expiry. We price American style of general derivative using a formula expressed as a sum of the value of European style of derivative and so called American premium. We use the latter expression to calculate an analytic formula for limit of early exercise boundary at expiry. Method applied on American style plain vanilla, Asian and lookback options yields identical results with already known values. Results for selected American style of derivative strategies are compared with limits calculated by the PSOR method.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1012.0348.
Date of creation: Dec 2010
Date of revision: Mar 2011
Contact details of provider:
Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-11 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carl Chiarella & Andrew Ziogas, 2002.
"Evaluation of American Strangles,"
Computing in Economics and Finance 2002
28, Society for Computational Economics.
- Daniel Sevcovic, 2008. "Transformation methods for evaluating approximations to the optimal exercise boundary for linear and nonlinear Black-Scholes equations," Papers 0805.0611, arXiv.org.
- Asbjørn T. Hansen & Peter Løchte Jørgensen, 2000. "Analytical Valuation of American-Style Asian Options," Management Science, INFORMS, vol. 46(8), pages 1116-1136, August.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If references are entirely missing, you can add them using this form.