On a Free Boundary Problem for an American Put Option Under the CEV Process
Miao Xu
Charles Knessl
10027/7734
https://indigo.uic.edu/articles/journal_contribution/On_a_Free_Boundary_Problem_for_an_American_Put_Option_Under_the_CEV_Process/10772603
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 boundary 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.
2011-05-27 00:00:00
American put option
CEV process