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American options on assets with dividends near expiry

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  • J. D. Evans
  • R. Kuske
  • Joseph B. Keller

Abstract

Explicit expressions valid near expiry are derived for the values and the optimal exercise boundaries of American put and call options on assets with dividends. The results depend sensitively on the ratio of the dividend yield rate D to the interest rate r. For D>r the put boundary near expiry tends parabolically to the value rK/D where K is the strike price, while for D≤r the boundary tends to K in the parabolic‐logarithmic form found for the case D=0 by Barles et al. (1995) and by Kuske and Keller (1998). For the call, these two behaviors are interchanged: parabolic and tending to rK/D for D

Suggested Citation

  • J. D. Evans & R. Kuske & Joseph B. Keller, 2002. "American options on assets with dividends near expiry," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 219-237, July.
    • Handle: RePEc:bla:mathfi:v:12:y:2002:i:3:p:219-237
    DOI: 10.1111/1467-9965.02008
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