Hints for an extension of the early exercise premium formula for American options

Hans-Peter Bermin, Arturo Kohatsu-Higa and Josep Perelló

Physica A: Statistical Mechanics and its Applications, 2005, vol. 355, issue 1, 152-157

Abstract: There exists a non-closed formula for the American put option price and non-trivial computations are required to solve it. Strong efforts have been made to propose efficient numerical techniques but few have strong mathematical reasoning to ascertain why they work well. We present an extension of the American put price aiming to catch weaknesses of the numerical methods based on their non-fulfillment of the smooth pasting condition.

Keywords: Econophysics; American put option; Computational methods; Black–Scholes; Option pricing (search for similar items in EconPapers)
Date: 2005
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:355:y:2005:i:1:p:152-157

DOI: 10.1016/j.physa.2005.02.077

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