Article ID Journal Published Year Pages File Type
4634403 Applied Mathematics and Computation 2008 12 Pages PDF
Abstract

In this paper, we study the smoothness of the optimal exercise boundary (i.e. free boundary) of American-style arithmetic average Asian option with floating strike price in finite horizon case (i.e. parabolic case). Applying stochastic analysis the authors of [G. Peskir, N. Yus, On Asian options of American type, Exotic Option Pricing and Advanced Levy Models, Wiley, Eindhoven, 2004, pp. 217–235; G. Peskir, A. Shiryaev, Optimal stopping and free boundary problems, Lectures in Mathematics ETH Zurich, Birkhauser, 2006, pp. 416–436] proved that the optimal exercise boundary is a continuous and monotonic curve. Based on their results we prove that the optimal exercise boundary is infinitely differentiable using PDE method.

Related Topics
Physical Sciences and Engineering Mathematics Applied Mathematics
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