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American chooser options

Authors
Journal
Journal of Economic Dynamics and Control
0165-1889
Publisher
Elsevier
Publication Date
Volume
33
Issue
1
Identifiers
DOI: 10.1016/j.jedc.2008.05.004
Keywords
  • American Chooser Options
  • Exercise Region
  • Early Exercise Premium
  • Integral Equations

Abstract

Abstract This paper examines the valuation of American chooser options, i.e., American-style contracts written on the maximum of an American put and an American call. The structure of the immediate exercise region is examined. The early exercise premium representation of the chooser's price is derived and used to construct a system of coupled recursive integral equations for a pair of boundary components. Numerical implementations of the model based on this system are carried out and used to examine the boundary properties and the price behavior.

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