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NONCONVEXITY OF THE OPTIMAL EXERCISE BOUNDARY FOR AN AMERICAN PUT OPTION ON A DIVIDEND‐PAYING ASSET |
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| Authors: | Xinfu Chen Huibin Cheng John Chadam |
| Institution: | University of Pittsburgh |
| Abstract: | We prove that when the dividend rate of the underlying asset following a geometric Brownian motion is slightly larger than the risk‐free interest rate, the optimal exercise boundary of the American put option is not convex. |
| Keywords: | American option put option free boundary convexity integro‐differential equation near‐expiry estimate |