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The Convexity of the Free Boundary for the American put option

  • Hsuan-Ku Liu
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    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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    File URL: http://arxiv.org/pdf/1304.5337
    File Function: Latest version
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    Paper provided by arXiv.org in its series Papers with number 1304.5337.

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    Date of creation: Apr 2013
    Date of revision: Dec 2014
    Handle: RePEc:arx:papers:1304.5337
    Contact details of provider: Web page: http://arxiv.org/

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    1. 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.
    2. 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.
    3. Geske, Robert & Johnson, Herb E, 1984. " The American Put Option Valued Analytically," Journal of Finance, American Finance Association, vol. 39(5), pages 1511-24, December.
    4. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
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