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Title: The Early Exercise Premium Representation for American Options on Multiply Assets

In the paper we consider the problem of valuation of American options written on dividend-paying assets whose price dynamics follow the classical multidimensional Black and Scholes model. We provide a general early exercise premium representation formula for options with payoff functions which are convex or satisfy mild regularity assumptions. Examples include index options, spread options, call on max options, put on min options, multiply strike options and power-product options. In the proof of the formula we exploit close connections between the optimal stopping problems associated with valuation of American options, obstacle problems and reflected backward stochastic differential equations.
Authors:
;  [1]
  1. Nicolaus Copernicus University, Faculty of Mathematics and Computer Science (Poland)
Publication Date:
OSTI Identifier:
22469614
Resource Type:
Journal Article
Resource Relation:
Journal Name: Applied Mathematics and Optimization; Journal Volume: 73; Journal Issue: 1; Other Information: Copyright (c) 2016 Springer Science+Business Media New York; Article Copyright (c) 2015 The Author(s); http://www.springer-ny.com; Country of input: International Atomic Energy Agency (IAEA)
Country of Publication:
United States
Language:
English
Subject:
71 CLASSICAL AND QUANTUM MECHANICS, GENERAL PHYSICS; CALCULATION METHODS; DIFFERENTIAL EQUATIONS; FUNCTIONS; MATHEMATICAL MODELS; MATHEMATICAL SOLUTIONS; STOCHASTIC PROCESSES