The regularity of the free boundary for strike reset option |
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Authors: | Yang Zhou |
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Affiliation: | School of Mathematical Sciences, South China Normal University, Guangzhou 510631, China |
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Abstract: | A strike reset option is an option that allows its holder to reset the strike price to the prevailing underlying asset price at a moment chosen by the holder. The pricing model of the option can be formulated as a parabolic variational inequality and the optimal reset strategy is the free boundary. The smoothness of the free boundary in some cases was showed in our article published in JDE. We would prove its smoothness in the other case in this paper by a generalized comparison principle for the variational inequality. |
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Keywords: | strike reset option free boundary variational inequality the comparison principl |
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