Early exercise boundaries for American-style knock-out options
| Autor: | João Pedro Ruas, José Carlos Dias, João Pedro Vidal Nunes |
|---|---|
| Rok vydání: | 2020 |
| Předmět: |
050210 logistics & transportation
Mathematical optimization 021103 operations research Information Systems and Management General Computer Science Computer science 05 social sciences 0211 other engineering and technologies Monotonic function 02 engineering and technology Management Science and Operations Research Lévy process Industrial and Manufacturing Engineering Modeling and Simulation 0502 economics and business Portfolio Optimal stopping Hedge (finance) Valuation (finance) |
| Zdroj: | European Journal of Operational Research. 285:753-766 |
| ISSN: | 0377-2217 |
| Popis: | This paper proposes a novel representation for the early exercise boundary of American-style double knock-out options in terms of the simpler optimal stopping boundary of a nested single barrier contract. Such representation only requires the existence, continuity and monotonicity (in time) of the nested single barrier exercise boundary, and these requirements are proved for the whole class of single-factor exponential-Levy processes. To illustrate the practical relevance of our results, a new put-call duality relation is obtained, a real options application is provided and the Fourier space time-stepping method, the COS approximation, and the static hedging portfolio approach are all adapted to the valuation of American-style double knock-out options. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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