CLOSED FORM OPTIMAL EXERCISE BOUNDARY OF THE AMERICAN PUT OPTION

Yerkin Kitapbayev ()
Additional contact information
Yerkin Kitapbayev: Department of Mathematics, North Carolina State University, 2311 Stinson drive, Raleigh, NC 27695, USA

International Journal of Theoretical and Applied Finance (IJTAF), 2021, vol. 24, issue 01, 1-18

Abstract: We present three models of stock price with time-dependent interest rate, dividend yield, and volatility, respectively, that allow for explicit forms of the optimal exercise boundary of the finite maturity American put option. The optimal exercise boundary satisfies the nonlinear integral equation of Volterra type. We choose time-dependent parameters of the model so that the integral equation for the exercise boundary can be solved in the closed form. We also define the contracts of put type with time-dependent strike price that support the explicit optimal exercise boundary.

Keywords: American put option; geometric Brownian motion; optimal stopping; free-boundary problem; integral equation (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024921500047
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:24:y:2021:i:01:n:s0219024921500047

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024921500047

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().