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A unified approach to determining the early exercise boundary position at expiry for American style of general class of derivatives

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  • Tomas Bokes

Abstract

In this paper, we present a new method for calculating the limit of early exercise boundary at expiry. We price American style of general derivative using a formula expressed as a sum of the value of European style of derivative and so called American premium. We use the latter expression to calculate an analytic formula for limit of early exercise boundary at expiry. Method applied on American style plain vanilla, Asian and lookback options yields identical results with already known values. Results for selected American style of derivative strategies are compared with limits calculated by the PSOR method.

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  • Tomas Bokes, 2010. "A unified approach to determining the early exercise boundary position at expiry for American style of general class of derivatives," Papers 1012.0348, arXiv.org, revised Mar 2011.
    • Handle: RePEc:arx:papers:1012.0348
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    References listed on IDEAS

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    1. Song-Ping Zhu, 2006. "A New Analytical Approximation Formula For The Optimal Exercise Boundary Of American Put Options," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(07), pages 1141-1177.
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    6. Song-Ping Zhu & Zhi-Wei He, 2007. "Calculating The Early Exercise Boundary Of American Put Options With An Approximation Formula," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 10(07), pages 1203-1227.
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    9. Tomas Bokes & Daniel Sevcovic, 2009. "Early exercise boundary for American type of floating strike Asian option and its numerical approximation," Papers 0912.1321, arXiv.org.
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