American option: an optimal stopping problem
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.
- Published
- 20 December 2015
- Volume
- 2015 (2015)
- License
- CC BY 3.0
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.
Cite this article
E. H. Oluyemisi, F. S. Emmanuel, American option: an optimal stopping problem, Math. Finance Lett. 2015 (2015), 10.
BibTeX
@article{Oluyemisi2015,
author = {Oluyemisi, Emeka Helen and Emmanuel, Fadugba Sunday},
title = {American option: an optimal stopping problem},
journal = {Math. Finance Lett.},
volume = {2015},
year = {2015},
pages = {10},
doi = {}
}