Optimal exercise boundary for an American put option

Abstract

The optimal exercise boundary near the expiration time is determined for an American put option. It is obtained by using Green's theorem to convert the boundary value problem for the price of the option into an integral equation for the optimal exercise boundary. This integral equation is solved asymptotically for small values of the time to expiration. The leading term in the asymptotic solution is the result of Barles et al. [1]. An asymptotic solution for the option price is obtained also. Supported in part by an NSF Mathematical Sciences Postdoctoral Research Fellowship.

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Cite this paper

@inproceedings{Kuske1998OptimalEB, title={Optimal exercise boundary for an American put option}, author={Rachel Kuske and Joseph B. Keller}, year={1998} }