23 May 2005 A closed-form exact solution for the value of American put and its optimal exercise boundary (Invited Paper)
Author Affiliations +
Proceedings Volume 5848, Noise and Fluctuations in Econophysics and Finance; (2005) https://doi.org/10.1117/12.609078
Event: SPIE Third International Symposium on Fluctuations and Noise, 2005, Austin, Texas, United States
Abstract
Searching for a closed-form exact solution for American put options under the Black-Scholes framework has been a long standing problem in the past; many researchers believe that it is impossible to find such a solution. In this paper, a closed-form exact solution, in the form of a Taylor's series expansion, of the well-known Black-Scholes equation is presented for the first time. As a result of this analytic solution, the optimal exercise boundary, which is the main difficulty of the problem, is found as an explicit function of the risk-free interest rate, the volatility and the time to expiration.
© (2005) COPYRIGHT Society of Photo-Optical Instrumentation Engineers (SPIE). Downloading of the abstract is permitted for personal use only.
Song-Ping Zhu, "A closed-form exact solution for the value of American put and its optimal exercise boundary (Invited Paper)", Proc. SPIE 5848, Noise and Fluctuations in Econophysics and Finance, (23 May 2005); doi: 10.1117/12.609078; https://doi.org/10.1117/12.609078
PROCEEDINGS
14 PAGES


SHARE
Back to Top