66
Views
9
CrossRef citations to date
0
Altmetric
Original Articles

A second-order Nyström-type discretization for the early-exercise curve of American put options

Pages 982-991 | Received 12 Aug 2008, Accepted 03 Oct 2008, Published online: 01 Jun 2009
 

Abstract

It is well known that the value of an American option can be expressed as the sum of the corresponding European option and a premium, which reflects the additional right of early exercise. Based on this expression, it is possible to derive an integral equation for the early-exercise curve. Because the early-exercise curve is not sufficiently smooth at expiry, an ad hoc Nyström discretization of high order for solving the integral equation is not guaranteed. In this paper, we present a Nyström-type discretization, which uses an adequate integral transformation to circumvent the non-sufficient smoothness at expiry and results in a method of second order.

2000 AMS Subject Classifications :

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.