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Analysis of the optimal exercise boundary of American put options with delivery lags
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Liang, Gechun and Yang, Zhou (2021) Analysis of the optimal exercise boundary of American put options with delivery lags. Journal of Mathematical Analysis and Applications, 497 (2). 124916. doi:10.1016/j.jmaa.2020.124916 ISSN 0022-247X.
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Official URL: http://dx.doi.org/10.1016/j.jmaa.2020.124916
Abstract
A make-your-mind-up option is an American derivative with delivery lags. We show that its put option can be decomposed as a European put and a new type of American-style derivative. The latter is an option for which the investor receives the Greek Theta of the corresponding European option as the running payoff, and decides an optimal stopping time to terminate the contract. Based on this decomposition and using free boundary techniques, we show that the associated optimal exercise boundary exists and is a strictly increasing and smooth curve, and analyze the asymptotic behavior of the value function and the optimal exercise boundary for both large maturity and small time lag.
Item Type: | Journal Article | ||||||||||||
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Subjects: | H Social Sciences > HG Finance Q Science > QA Mathematics |
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Divisions: | Faculty of Science, Engineering and Medicine > Science > Statistics | ||||||||||||
Library of Congress Subject Headings (LCSH): | Asymptotic distribution (Probability theory), Asymptotic efficiencies (Statistics) , Stochastic processes , Derivative securities -- Mathematical models, Boundary value problems -- Asymptotic theory | ||||||||||||
Journal or Publication Title: | Journal of Mathematical Analysis and Applications | ||||||||||||
Publisher: | Academic Press | ||||||||||||
ISSN: | 0022-247X | ||||||||||||
Official Date: | 15 May 2021 | ||||||||||||
Dates: |
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Volume: | 497 | ||||||||||||
Number: | 2 | ||||||||||||
Article Number: | 124916 | ||||||||||||
DOI: | 10.1016/j.jmaa.2020.124916 | ||||||||||||
Status: | Peer Reviewed | ||||||||||||
Publication Status: | Published | ||||||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||||||
Date of first compliant deposit: | 11 January 2021 | ||||||||||||
Date of first compliant Open Access: | 5 January 2023 | ||||||||||||
RIOXX Funder/Project Grant: |
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