On a free boundary problem for an American put option under the CEV process

Details On a free boundary problem for an American put option under the CEV process On a free boundary problem for an American put option under the CEV process

2010-09-15

arxiv.org/abs/1009.2973v2

Mathematics

Analysis of PDEs

14 pages, 0 figures

Scientific paper

We consider an American put option under the CEV process. This corresponds to a free boundary problem for a PDE. We show that this free bondary satisfies a nonlinear integral equation, and analyze it in the limit of small $\rho$ = $2r/ \sigma^2$, where $r$ is the interest rate and $\sigma$ is the volatility. We use perturbation methods to find that the free boundary behaves differently for five ranges of time to expiry.

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