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A NUMERICAL METHOD FOR DETERMINING THE OPTIMAL EXERCISE PRICE TO AMERICAN OPTIONS |
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| Authors: | Xiong-hua Wu Xiu-juan Feng |
| Abstract: | American options can be exercised prior to the date of expiration, the valuation of American options then constitutes a free boundary value problem. How to determine the free boundary, i.e. the optimal exercise price, is a key problem. In this paper, a nonlinear equation is given. The free boundary can be obtained by solving the nonlinear equation and the numerical results are better. |
| Keywords: | American options Free boundary Optimal exercise price Nonlinear equation |
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