Are American options European after all?

DOI10.1214/21-AAP1698zbMATH Open1492.91369arXiv2002.05571OpenAlexW3121680915MaRDI QIDQ2134285FDOQ2134285

Yanyan Li

Publication date: 6 May 2022

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: We call a given American option representable if there exists a European claim which dominates the American payoff at any time and such that the values of the two options coincide in the continuation region of the American option. This concept has interesting implications from a probabilistic, analytic, financial, and numeric point of view. Relying on methods from Jourdain and Martini (2001, 2002), Chrsitensen (2014) and convex duality, we make a first step towards verifying representability of American options.

Full work available at URL: https://arxiv.org/abs/2002.05571

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zbMATH Keywords

dualityfree boundary problemoptimal stoppingcheapest dominating European optionembedded American optionrepresentable American option

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Stopping times; optimal stopping problems; gambling theory (60G40)

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Cited In (2)

• A new integral equation for Brownian stopping problems with finite time horizon
• American prices embedded in European prices

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