The American put and European options near expiry, under Levy processes

Details The American put and European options near expiry, under Levy processes The American put and European options near expiry, under Levy processes

2004-04-05

arxiv.org/abs/cond-mat/0404103v1

Physics

Condensed Matter

Other Condensed Matter

29 pages, 6 figures, submitted to ``Stochastic Porcesses and their Applications"

Scientific paper

We derive explicit formulas for time decay, for the European call and put options at expiry, and use them to calculate analytical approximations to the price of the American put and early exercise boundary near expiry. We show that for many families of non-Gaussian processes used in empirical studies of financial markets, the early exercise boundary for the American put without dividends is separated from the strike price by a non-vanishing margin on the interval [0,T). As the riskless rate vanishes and the drift decreases accordingly so that the stock remains a martingale, the optimal exercise price goes to zero uniformly over the interval [0, T). The implications for parameters' fitting are discussed.

Affiliated with

Also associated with

No associations

Rating

The American put and European options near expiry, under Levy processes does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with The American put and European options near expiry, under Levy processes, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and The American put and European options near expiry, under Levy processes will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-666579