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An Asymptotic Analysis of an American Call Option with Small Volatility


  • N.P. Firth
  • J.N. Dewynne
  • S. J. Chapman


In this paper we present an asymptotic analysis of an American call option where the diffusion term (volatility) is small compared to the drift terms (interest rate and continuous dividend yield). We show that in the limit where diffusion is negligible, relative to drift, then, at leading order, the American call’s behaviour is the same as a perpetual American call option (except in a boundary layer about the option’s expiry date).

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  • N.P. Firth & J.N. Dewynne & S. J. Chapman, 2004. "An Asymptotic Analysis of an American Call Option with Small Volatility," OFRC Working Papers Series 2004mf03, Oxford Financial Research Centre.
  • Handle: RePEc:sbs:wpsefe:2004mf03

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