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Optimal Choice Models for Executing Time to American Options

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Author Info

  • Feng Dai

    (Zhengzhou Information Engineering University)

  • Feng Han

    (Zhengzhou Information Engineering University)

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Abstract

Based on the structure models of options pricing on non-dividend-paying stock [16], this paper presents the choosing models and methods of optimal time of executing an American options for the first time. By using the models and methods, we can find the choosing criterion and optimal time to exercise the American options, i.e. the product of options price and its occurring probability is at maximum. So we can decide that an American option should be exercised or not in any time. The conclusions in this paper are more important in its consulting effect for single trader and organization investors to make their security market trade.

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File URL: http://128.118.178.162/eps/fin/papers/0412/0412016.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0412016.

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Length: 10 pages
Date of creation: 10 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0412016

Note: Type of Document - pdf; pages: 10
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Web page: http://128.118.178.162

Related research

Keywords: partial distribution; American options; structure pricing; optimal executing; analytic formula;

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  1. Peter Carr & Robert Jarrow & Ravi Myneni, 1992. "Alternative Characterizations Of American Put Options," Mathematical Finance, Wiley Blackwell, vol. 2(2), pages 87-106.
  2. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
  3. Feng Dai & Zifu Qin, 2004. "Df Structure Models For Options Pricing," Finance 0403005, EconWPA.
  4. Barone-Adesi, Giovanni & Whaley, Robert E, 1987. " Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-20, June.
  5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  6. Geske, Robert & Roll, Richard, 1984. " On Valuing American Call Options with the Black-Scholes European Formula," Journal of Finance, American Finance Association, vol. 39(2), pages 443-55, June.
  7. Peter Ritchken & Rob Trevor, 1999. "Pricing Options under Generalized GARCH and Stochastic Volatility Processes," Journal of Finance, American Finance Association, vol. 54(1), pages 377-402, 02.
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