A unified approach to determining the early exercise boundary position at expiry for American style of general class of derivatives

Tomas Bokes

Papers from arXiv.org

Abstract: In this paper, we present a new method for calculating the limit of early exercise boundary at expiry. We price American style of general derivative using a formula expressed as a sum of the value of European style of derivative and so called American premium. We use the latter expression to calculate an analytic formula for limit of early exercise boundary at expiry. Method applied on American style plain vanilla, Asian and lookback options yields identical results with already known values. Results for selected American style of derivative strategies are compared with limits calculated by the PSOR method.

Date: 2010-12, Revised 2011-03
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