The critical price of the American put near maturity in the jump diffusion model

DOI10.1137/140965910MaRDI QIDQ2808186zbMATH OpenOpenAlexFDO

Authors Aych Bouselmi, Damien Lamberton

Publication date 20 May 2016

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1406.6615

zbMATH Keywords

jump diffusionconvergence ratefree boundaryAmerican putcritical priceLévy processes

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80)

Abstract: We study the behavior of the critical price of an American put option near maturity in the Jump diffusion model when the underlying stock pays dividends at a continuous rate and the limit of the critical price is smaller than the stock price. In particular, we prove that, unlike the case where the limit is equal to the strike price, jumps can influence the convergence rate.

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Cites work

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Cited in

(5)

• CRITICAL PRICE NEAR MATURITY FOR AN AMERICAN OPTION ON A DIVIDEND‐PAYING STOCK IN A LOCAL VOLATILITY MODEL
• An improvement of an analytical approximation method for American options
• scientific article; zbMATH DE number 797366 (Why is no real title available?)
• Optimal exercise of American put options near maturity: a new economic perspective
• Critical price near maturity for an American option on a dividend-paying stock.

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