Adaptive algorithm for solution of early exercise boundary problem of American put option implemented in Mathematica
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F49777513%3A23510%2F17%3A43932836" target="_blank" >RIV/49777513:23510/17:43932836 - isvavai.cz</a>
Result on the web
<a href="http://dx.doi.org/10.1051/matecconf/2017/12504028" target="_blank" >http://dx.doi.org/10.1051/matecconf/2017/12504028</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1051/matecconf/2017/12504028" target="_blank" >10.1051/matecconf/2017/12504028</a>
Alternative languages
Result language
angličtina
Original language name
Adaptive algorithm for solution of early exercise boundary problem of American put option implemented in Mathematica
Original language description
The paper is focused on American option pricing problem. Assuming non-dividend paying American put option leads to two disjunctive regions, a continuation one and a stopping one, which are separated by an early exercise boundary. We present variational formulation of American option problem with special attention to early exercise action effect. Next, we discuss financially motivated additive decomposition of American option price into a European option price and another part due to the extra premium required by early exercising the option contract. As the optimal exercise boundary is a free boundary, its determination is coupled with the determination of the option price. Therefore, a closed-form expression of the free boundary is not attainable in general. We discuss in detail a derivation of an asymptotic expression of the early exercise boundary. Finally, we present some numerical results of determination of free boundary based upon this approach. All computations are performed by sw Mathematica, and suitable numerical procedure is discussed in detail, as well.
Czech name
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Czech description
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Classification
Type
D - Article in proceedings
CEP classification
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OECD FORD branch
50206 - Finance
Result continuities
Project
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Continuities
S - Specificky vyzkum na vysokych skolach
Others
Publication year
2017
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Article name in the collection
MATEC Web of Conferences
ISBN
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ISSN
2261-236X
e-ISSN
neuvedeno
Number of pages
6
Pages from-to
1-6
Publisher name
EDP Sciences
Place of publication
London
Event location
Agia Pelagia Beach Heraklion, Greece
Event date
Jul 14, 2017
Type of event by nationality
WRD - Celosvětová akce
UT code for WoS article
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