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Stochastics
An International Journal of Probability and Stochastic Processes
Volume 83, 2011 - Issue 4-6: Optimal stopping with Applications
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Original Articles

An integral equation for American put options on assets with general dividend processes

M. H. Vellekoop RESAM, Department of Quantitative Economics, University of Amsterdam, Amsterdam, The NetherlandsCorrespondence[email protected]
&
J. W. Nieuwenhuis Department of Economics, University of Groningen, Groningen, The NetherlandsView further author information
Pages 555-567 | Received 10 Dec 2009, Accepted 15 Oct 2010, Published online: 10 Oct 2011
 
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Abstract

The difference between an American put option and its European counterpart has been characterized in terms of a simple integral expression which can be used to calculate the optimal exercise boundary in a recursive manner, if Black–Scholes dynamics are assumed for the underlying asset. In this paper, we extend this formula to the case where a more general stock and cumulative dividend process are included, and show how this changes the properties of the optimal exercise boundary.

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J. W. Nieuwenhuis

1 1. [email protected]

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