American Option Pricing Problem Formulated as Variational Inequality Problem

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F49777513%3A23510%2F16%3A43930587" target="_blank" >RIV/49777513:23510/16:43930587 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Result language
angličtina
Original language name
American Option Pricing Problem Formulated as Variational Inequality Problem
Original language description
The paper deals with variational formulation of option pricing problems. Pricing American options requires, due to the early exercise feature of such derivative contracts, the solution of optimal stopping problems for the price process. Unlike in the European case, the pricing function of an American option does not satisfy a partial differential equation, but a partial differential inequality, or a system of inequalities. Recasting such problem into a variational inequality problem is the next step, which is given in detail. We mention briefly the functional space which provides natural framework for weak formulation of American put option pricing problem. Both optimal exercise boundary and additive decomposition of American put option are discussed, as well.
Czech name
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Czech description
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Project
<a href="/en/project/GA15-20405S" target="_blank" >GA15-20405S: Modelling of processes on financial markets and prediction of firm default by real options</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2016
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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