Asymptotic analysis of American call options
American call options are financial derivatives that give the holder the right but not the obligation to buy an underlying security at a pre-determined price. They differ from European options in that they may be exercised at any time prior to their expiration, rather than only at expiration. Their...
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| Format: | Article |
| Language: | English |
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Wiley
2001-01-01
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| Series: | International Journal of Mathematics and Mathematical Sciences |
| Online Access: | http://dx.doi.org/10.1155/S0161171201005701 |
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| _version_ | 1832553441338064896 |
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| author | Ghada Alobaidi Roland Mallier |
| author_facet | Ghada Alobaidi Roland Mallier |
| author_sort | Ghada Alobaidi |
| collection | DOAJ |
| description | American call options are financial derivatives that give the holder the right but not the obligation to buy an underlying security at a pre-determined price. They differ from European
options in that they may be exercised at any time prior to their expiration, rather than only at expiration. Their value is described by the Black-Scholes PDE together with a constraint that
arises from the possibility of early exercise. This leads to a free boundary problem for the optimal exercise boundary, which determines whether or not it is beneficial for the holder to
exercise the option prior to expiration. However, an exact solution cannot be found, and therefore by using asymptotic techniques employed in the study of boundary layers in fluid
mechanics, we find an asymptotic expression for the location of the optimal exercise boundary and the value of the option near to expiration. |
| format | Article |
| id | doaj-art-fd2165ac783e4a4da984b8099c9ca83e |
| institution | Kabale University |
| issn | 0161-1712 1687-0425 |
| language | English |
| publishDate | 2001-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | International Journal of Mathematics and Mathematical Sciences |
| spelling | doaj-art-fd2165ac783e4a4da984b8099c9ca83e2025-02-03T05:54:01ZengWileyInternational Journal of Mathematics and Mathematical Sciences0161-17121687-04252001-01-0127317718810.1155/S0161171201005701Asymptotic analysis of American call optionsGhada Alobaidi0Roland Mallier1Department of Applied Mathematics, University of Western Ontario, Ontario, London N6A 5B7, CanadaDepartment of Applied Mathematics, University of Western Ontario, Ontario, London N6A 5B7, CanadaAmerican call options are financial derivatives that give the holder the right but not the obligation to buy an underlying security at a pre-determined price. They differ from European options in that they may be exercised at any time prior to their expiration, rather than only at expiration. Their value is described by the Black-Scholes PDE together with a constraint that arises from the possibility of early exercise. This leads to a free boundary problem for the optimal exercise boundary, which determines whether or not it is beneficial for the holder to exercise the option prior to expiration. However, an exact solution cannot be found, and therefore by using asymptotic techniques employed in the study of boundary layers in fluid mechanics, we find an asymptotic expression for the location of the optimal exercise boundary and the value of the option near to expiration.http://dx.doi.org/10.1155/S0161171201005701 |
| spellingShingle | Ghada Alobaidi Roland Mallier Asymptotic analysis of American call options International Journal of Mathematics and Mathematical Sciences |
| title | Asymptotic analysis of American call options |
| title_full | Asymptotic analysis of American call options |
| title_fullStr | Asymptotic analysis of American call options |
| title_full_unstemmed | Asymptotic analysis of American call options |
| title_short | Asymptotic analysis of American call options |
| title_sort | asymptotic analysis of american call options |
| url | http://dx.doi.org/10.1155/S0161171201005701 |
| work_keys_str_mv | AT ghadaalobaidi asymptoticanalysisofamericancalloptions AT rolandmallier asymptoticanalysisofamericancalloptions |