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The Closed-Form Solution for Pricing American Put Options

The Closed-Form Solution for Pricing American Put Optionsaf Xiaodong Wang
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This book proposes a closed-form solution for pricing an American put option on a non-dividend paying stock based on an optimally early-exercise strategy. An American put option should be early exercised when the maximum option premium of early exercise is not less than the value of its European counterpart; otherwise, it should not be early exercised. This paper also shows that Merton (1973)¿s formula for pricing a perpetual American put option on a non-dividend paying stock is not perfect and shows such an option¿s value is equal to its strike price.

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  • Sprog:
  • Engelsk
  • ISBN:
  • 9783330013261
  • Indbinding:
  • Paperback
  • Sideantal:
  • 52
  • Udgivet:
  • 8. december 2016
  • Størrelse:
  • 150x4x220 mm.
  • Vægt:
  • 96 g.
  • 2-3 uger.
  • 26. november 2024
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This book proposes a closed-form solution for pricing an American put option on a non-dividend paying stock based on an optimally early-exercise strategy. An American put option should be early exercised when the maximum option premium of early exercise is not less than the value of its European counterpart; otherwise, it should not be early exercised. This paper also shows that Merton (1973)¿s formula for pricing a perpetual American put option on a non-dividend paying stock is not perfect and shows such an option¿s value is equal to its strike price.

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