Closed-form approximation of American options
This paper presents a closed-form approximation of the value of the finite-lived American option where the underlying asset provides a constant pay-out rate. It is derived by imposing a restriction on the set of feasible exercise strategies, and thus represents a lower bound to the option value. The exercise strategy is to exercise the option the first time the price of the underlying asset hits a flat boundary. Our numerical results show that this lower bound is very close to the true option value.
Volume (Year): 9 (1993)
Issue (Month): Supplement 1 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/872/description#description|
|Order Information:|| Postal: http://www.elsevier.com/wps/find/journaldescription.cws_home/872/bibliographic|
When requesting a correction, please mention this item's handle: RePEc:eee:scaman:v:9:y:1993:i:supplement1:p:s87-s99. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.