Analysis of the optimal exercise boundary of American put options with delivery lags

JOURNAL OF MATHEMATICAL ANALYSIS AND APPLICATIONS

卷:497

Article

Liang, Gechun¹  Yang, Zhou² 

[1] Univ Warwick, Dept Stat, Coventry CV4 7AL, W Midlands, England

[2] South China Normal Univ, Sch Math Sci, Guangzhou 510631, Peoples R China

关键词: Make-your-mind-up option;    Early exercise premium decomposition;    Optimal exercise boundary;    Free boundary;    Asymptotic behavior;   

DOI  :  10.1016/j.jmaa.2020.124916

来源: Elsevier

【 摘 要 】

A make-your-mind-up option is an American derivative with delivery lags. We show that its put option can be decomposed as a European put and a new type of American-style derivative. The latter is an option for which the investor receives the Greek Theta of the corresponding European option as the running payoff, and decides an optimal stopping time to terminate the contract. Based on this decomposition and using free boundary techniques, we show that the associated optimal exercise boundary exists and is a strictly increasing and smooth curve, and analyze the asymptotic behavior of the value function and the optimal exercise boundary for both large maturity and small time lag. Crown Copyright (C) 2021 Published by Elsevier Inc. All rights reserved.

【 授权许可】

Free