On a Free Boundary Problem for an American Put Option Under the CEV Process
journal contributionposted on 27.05.2011 by Miao Xu, Charles Knessl
Any type of content formally published in an academic journal, usually following a peer-review process.
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.