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Perpetual American put options in a level-dependent volatility model
- Source :
- Journal of Applied Probability. 40:783-789
- Publication Year :
- 2003
- Publisher :
- Cambridge University Press (CUP), 2003.
-
Abstract
- This thesis, consisting of six papers and a summary, studies the area of continuous time financial mathematics. A unifying theme for many of the problems studied is the implications of possible mis-specifications of models. Intimately connected with this question is, perhaps surprisingly, convexity properties of option prices. We also study qualitative behavior of different optimal stopping boundaries appearing in option pricing.In Paper I a new condition on the contract function of an American option is provided under which the option price increases monotonically in the volatility. It is also shown that American option prices are continuous in the volatility.In Paper II an explicit pricing formula for the perpetual American put option in the Constant Elasticity of Variance model is derived. Moreover, different properties of this price are studied.Paper III deals with the Russian option with a finite time horizon. It is shown that the value of the Russian option solves a certain free boundary problem. This information is used to analyze the optimal stopping boundary.A study of perpetual game options is performed in Paper IV. One of the main results provides a condition under which the value of the option is increasing in the volatility.In Paper V options written on several underlying assets are considered. It is shown that, within a large class of models, the only model for the stock prices that assigns convex option prices to all convex contract functions is geometric Brownian motion.Finally, in Paper VI it is shown that the optimal stopping boundary for the American put option is convex in the standard Black-Scholes model.
- Subjects :
- Statistics and Probability
General Mathematics
010102 general mathematics
Trinomial tree
Implied volatility
Put–call parity
01 natural sciences
Binary option
010104 statistics & probability
Asian option
Finite difference methods for option pricing
0101 mathematics
Statistics, Probability and Uncertainty
Put option
Moneyness
Mathematical economics
Mathematics
Subjects
Details
- ISSN :
- 14756072 and 00219002
- Volume :
- 40
- Database :
- OpenAIRE
- Journal :
- Journal of Applied Probability
- Accession number :
- edsair.doi.dedup.....5d956797c0bd59e5066e8a9ebdf02c33