Article ID Journal Published Year Pages File Type
1142069 Operations Research Letters 2016 7 Pages PDF
Abstract

This note discusses how the never-early-exercise region of American power exchange options is influenced by the nonlinearity from its power coefficients. We consider a class of models which satisfy the power invariant property and show that early exercise depends crucially on the quantities termed effective dividend yields. Our mathematical analysis extends an existing model-free result and indicates how early exercise should depend on parameters. A numerical analysis is conducted to complement the analytical results and provide further observations.

Related Topics
Physical Sciences and Engineering Mathematics Discrete Mathematics and Combinatorics
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