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Exercise regions of American options on several assets

Author

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  • Stephane Villeneuve

    () (Equipe d'Analyse et de Math\' ematiques AppliquÊes, UniversitÊ de Marne-la-VallÊe, 2 rue de la Butte Verte, F-93166 Noisy-le-Grand Cedex, France Manuscript)

Abstract

In this paper, we study the nonemptiness and the shape of the exercise region of American options written on several assets. Our contribution is threefold. First, we state an analytic theorem which characterizes the nonemptiness of the exercise region. Second, we study a particular class of payoff functions for which we explicitly identify the shape and the asymptotic behavior near maturity of the associated exercise region. Finally, we present additional results which complement the Broadie and Detemple results concerning the valuation of various types of American options on several assets.

Suggested Citation

  • Stephane Villeneuve, 1999. "Exercise regions of American options on several assets," Finance and Stochastics, Springer, vol. 3(3), pages 295-322.
  • Handle: RePEc:spr:finsto:v:3:y:1999:i:3:p:295-322
    Note: received: June 1997; final version received: July 1998
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    Citations

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    Cited by:

    1. Décamps, Jean-Paul & Mariotti, Thomas & Villeneuve, Stéphane, 2000. "Investment Timing under Incomplete Information," IDEI Working Papers 115, Institut d'Économie Industrielle (IDEI), Toulouse, revised Apr 2004.
    2. Rombouts, Jeroen V.K. & Stentoft, Lars, 2011. "Multivariate option pricing with time varying volatility and correlations," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2267-2281, September.
    3. Louberge, Henri & Villeneuve, Stephane & Chesney, Marc, 2002. "Long-term risk management of nuclear waste: a real options approach," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 157-180, November.
    4. Masahiko Egami & Tadao Oryu, 2010. "Options on Multiple Assets in a Mean-Reverting Model," Discussion papers e-10-005, Graduate School of Economics Project Center, Kyoto University.
    5. Bobtcheff, Catherine & Villeneuve, Stéphane, 2010. "Technology choice under several uncertainty sources," European Journal of Operational Research, Elsevier, vol. 206(3), pages 586-600, November.
    6. Ken-ichi Mitsui & Yoshio Tabata, 2005. "Wavelet based Multi-grid analysis, Wavelet Galerkin method and their Applications to American option: A Survey," Discussion Papers in Economics and Business 05-26, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    7. Nishihara, Michi, 2014. "Preemptive investment game with alternative projects," Economic Modelling, Elsevier, vol. 43(C), pages 124-135.

    More about this item

    Keywords

    Optimal stopping; free boundary problems; American options;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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