The early exercise premium for American put options on stocks with dividends
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| Publication date | 2009 |
| Number of pages | 9 |
| Publisher | Amsterdam: Faculteit Economie en Bedrijfskunde |
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| Abstract |
The difference between an American put option and its European counterpart has been characterized in terms of a simple integral expression which can be used to calculate the optimal exercise boundary in a recursive manner, if Black-Scholes dynamics are assumed for the underlying asset. In this paper we extend this formula to the case where a more general stock and cumulative dividend process are included, and show how this changes the properties of the optimal exercise boundary. |
| Document type | Working paper |
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