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The integral equation for the American put boundary in models with jumps
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Mathematics, Applied Mathematics and Statistics.
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Mathematics.
(English)Article in journal (Other academic) Submitted
Abstract [en]

The price of the American put option is frequently studied as the solution to an associated free-boundary problem. This free boundary, the optimal exercise boundary, determines the value of the option. In spectrally negative models the early exercise premium representation for the value of the option gives rise to an integral equation for the boundary. We study this integral equation and prove that the optimal exercise boundary is the unique solution and thus that the equation characterizes the free boundary. In a spectrally positive model, this approach does not give an equation for the boundary. We instead find lower and upper bounds for the true boundary which can be found by solving related equations.

National Category
Probability Theory and Statistics
Research subject
Mathematics with specialization in Applied Mathematics
Identifiers
URN: urn:nbn:se:uu:diva-316576OAI: oai:DiVA.org:uu-316576DiVA: diva2:1078315
Available from: 2017-03-03 Created: 2017-03-03 Last updated: 2017-03-14
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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
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Language
  • de-DE
  • en-GB
  • en-US
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  • nn-NO
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  • sv-SE
  • Other locale
More languages
Output format
  • html
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