American option: an optimal stopping problem

Emeka Helen Oluyemisi, Fadugba Sunday Emmanuel

Abstract


We show that the problem of pricing the perpetual American options can be treated as an optimal stopping problem. We impose some boundary conditions to arrive at the optimal solutions. We consider the option price, stopping time, strike price and volatility to approach the problem. From the solution, we deduced that the optimal arbitrage free price for the perpetual American put option can only be determined if the optimal value of the stock price of the option is known.

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Published: 2015-12-20

How to Cite this Article:

Emeka Helen Oluyemisi, Fadugba Sunday Emmanuel, American option: an optimal stopping problem, Math. Finance Lett., 2015 (2015), Article ID 10

Copyright © 2015 Emeka Helen Oluyemisi, Fadugba Sunday Emmanuel. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Mathematical Finance Letters

ISSN 2051-2929

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