Perpetual American straddle option

CEN Yuan-jun; YI Fa-huai

Issue 3

Jul. 2014

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CEN Yuan-jun, YI Fa-huai. Perpetual American straddle option[J]. Journal of East China Normal University (Natural Sciences), 2014, (3): 8-13.

Citation:

CEN Yuan-jun, YI Fa-huai. Perpetual American straddle option[J]. Journal of East China Normal University (Natural Sciences), 2014, (3): 8-13.

CEN Yuan-jun, YI Fa-huai. Perpetual American straddle option[J]. Journal of East China Normal University (Natural Sciences), 2014, (3): 8-13.

Citation:

CEN Yuan-jun, YI Fa-huai. Perpetual American straddle option[J]. Journal of East China Normal University (Natural Sciences), 2014, (3): 8-13.

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Perpetual American straddle option

CEN Yuan-jun¹,
YI Fa-huai²

1.
Shunde Polytechnic, Foshan Guangdong 528333, China;
2.
School of Mathematical Sciences, South China Normal University, Guangzhou 510631, China

Received Date: 2013-07-01
Rev Recd Date: 2013-10-01
Publish Date: 2014-05-25

Abstract

Abstract

By appplying the comparison principle for the variational inequality, we analyzed the behavior of exercise boundaries for the perpetual American straddle option. We found that it is a free boundary problem. Different from the standard perpetual American option, it has two exercise boundary points with dividends and only one free boundary point without dividends. These results can be understood very well from the financial point of view. We will present a rigorous mathematical proof, and find the bounds of exercise boundaries for the American straddle option with finite expiry.
- straddle option,
- exercise boundary,
- variational inequality

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References(1)

References

{[1]} ALOBAIDI G, MALLIER R. Laplace transformations and the Americanstraddle [J]. Journal of Applied Mathematics, 2002(2): 121-129.
{[2]} ALOBAIDI G, MALLIER R. The American straddle close to expiry [J]. Boundary Value Problems, 2006, (Article ID 32835): 121-129.
{[3]} YI F H, CEN Y J. American straddle Option [J]. Chinese Journal of Engineering Mathematics, 2012, 29: 787-790.

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