The analytic valuation of American options |
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Authors: | Kim IN |
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Institution: | Department of Finance, Leonard N. Stern School of Business, New York University, 90 Trinity Place, New York, NY 10006, USA |
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Abstract: | No analytic solution exists for the valuation of American optionswritten on futures contracts and foreign currencies for whichearly exercise may be optimal. This article formulates the Americanoption valuation problem in economically and mathematicallymeaningful ways. This enables us to derive valuation formulasfor American options. The properties associated with the optimalexercise boundary are examined, and a numerical technique toimplement the valuation formulas is presented. |
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