On the optimal exercise boundary for an American put option
An American put option is a derivative financial instrument that gives its holder the right but not the obligation to sell an underlying security at a pre-determined price. American options may be exercised at any time prior to expiry at the discretion of the holder, and the decision as to whether o...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2001-01-01
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| Series: | Journal of Applied Mathematics |
| Online Access: | http://dx.doi.org/10.1155/S1110757X01000018 |
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| _version_ | 1832567683836542976 |
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| author | Ghada Alobaidi Roland Mallier |
| author_facet | Ghada Alobaidi Roland Mallier |
| author_sort | Ghada Alobaidi |
| collection | DOAJ |
| description | An American put option is a derivative financial instrument that
gives its holder the right but not the obligation to sell an
underlying security at a pre-determined price. American options
may be exercised at any time prior to expiry at the discretion of
the holder, and the decision as to whether or not to exercise
leads to a free boundary problem. In this paper, we examine the
behavior of the free boundary close to expiry. Working directly
with the underlying PDE, by using asymptotic expansions, we are
able to deduce this behavior of the boundary in this limit. |
| format | Article |
| id | doaj-art-c6c12c6e1a014266be8ca4188b44718a |
| institution | Kabale University |
| issn | 1110-757X 1687-0042 |
| language | English |
| publishDate | 2001-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Journal of Applied Mathematics |
| spelling | doaj-art-c6c12c6e1a014266be8ca4188b44718a2025-02-03T01:00:49ZengWileyJournal of Applied Mathematics1110-757X1687-00422001-01-0111394510.1155/S1110757X01000018On the optimal exercise boundary for an American put optionGhada Alobaidi0Roland Mallier1Department of Applied Mathematics, The University of Western Ontario, London N6A 5B7, ON, CanadaDepartment of Applied Mathematics, The University of Western Ontario, London N6A 5B7, ON, CanadaAn American put option is a derivative financial instrument that gives its holder the right but not the obligation to sell an underlying security at a pre-determined price. American options may be exercised at any time prior to expiry at the discretion of the holder, and the decision as to whether or not to exercise leads to a free boundary problem. In this paper, we examine the behavior of the free boundary close to expiry. Working directly with the underlying PDE, by using asymptotic expansions, we are able to deduce this behavior of the boundary in this limit.http://dx.doi.org/10.1155/S1110757X01000018 |
| spellingShingle | Ghada Alobaidi Roland Mallier On the optimal exercise boundary for an American put option Journal of Applied Mathematics |
| title | On the optimal exercise boundary for an American put option |
| title_full | On the optimal exercise boundary for an American put option |
| title_fullStr | On the optimal exercise boundary for an American put option |
| title_full_unstemmed | On the optimal exercise boundary for an American put option |
| title_short | On the optimal exercise boundary for an American put option |
| title_sort | on the optimal exercise boundary for an american put option |
| url | http://dx.doi.org/10.1155/S1110757X01000018 |
| work_keys_str_mv | AT ghadaalobaidi ontheoptimalexerciseboundaryforanamericanputoption AT rolandmallier ontheoptimalexerciseboundaryforanamericanputoption |