Approximations for the values of american options
- 1 January 1991
- journal article
- research article
- Published by Taylor & Francis in Stochastic Analysis and Applications
- Vol. 9 (2) , 115-131
- https://doi.org/10.1080/07362999108809230
Abstract
The solution of the American option valuation problem is the solution of a parabolic partial differential equation satisfying free boundary conditions. The free boundary represents the critical price, at which the option should be exercised. In this paper the free boundary is determined by an algebraic relation and an approximate solution derived. A suitable modification of the approximate solution gives the exact solution. The uniqueness of the free boundary implies the expression determined by the algebraic relation is the true critical priceKeywords
This publication has 3 references indexed in Scilit:
- Efficient Analytic Approximation of American Option ValuesThe Journal of Finance, 1987
- Martingales and stochastic integrals in the theory of continuous tradingStochastic Processes and their Applications, 1981
- The Pricing of Options and Corporate LiabilitiesJournal of Political Economy, 1973