Probabilistic approach to free boundary problems and pricing of American options |
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| Authors: | Ya I Belopolskaya M M Romadanova |
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| Institution: | 1.St. Petersburg State University for Architecture and Civil Engineering,St. Petersburg,Russia |
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| Abstract: | In this paper, we discuss a probabilistic approach to construction of a solution of a free boundary problem for parabolic
and integro-differential equations. This problem admits an interpretation as an optimization problem for a stochastic process
with diffusion and jumps satisfying a stochastic differential equation. The results are applied to calculation of American
option prices in the Black–Scholes and Merton models. Bibliography: 22 titles. |
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