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The Convexity of the Free Boundary for the American put option


  • Hsuan-Ku Liu


This paper studies the parabolic free boundary problem arising from pricing American-style put options on an asset whose index follows a geometric Brownian motion process. The contribution is to propose a condition for that the early exercise boundary is a convex function.

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  • Hsuan-Ku Liu, 2013. "The Convexity of the Free Boundary for the American put option," Papers 1304.5337,, revised Apr 2017.
  • Handle: RePEc:arx:papers:1304.5337

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    References listed on IDEAS

    1. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
    2. 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 637-654, May-June.
    3. Geske, Robert & Johnson, Herb E, 1984. " The American Put Option Valued Analytically," Journal of Finance, American Finance Association, vol. 39(5), pages 1511-1524, December.
    4. Rachel Kuske & Joseph Keller, 1998. "Optimal exercise boundary for an American put option," Applied Mathematical Finance, Taylor & Francis Journals, vol. 5(2), pages 107-116.
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