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8 May 2002 Evaluating approximations to the optimal exercise boundary for American options
Roland Mallier
J. Appl. Math. 2(2): 71-92 (8 May 2002). DOI: 10.1155/S1110757X02000268


We consider series solutions for the location of the optimal exercise boundary of an American option close to expiry. By using Monte Carlo methods, we compute the expected value of an option if the holder uses the approximate location given by such a series as his exercise strategy, and compare this value to the actual value of the option. This gives an alternative method to evaluate approximations. We find the series solution for the call performs excellently under this criterion, even for large times, while the asymptotic approximation for the put is very good near to expiry but not so good further from expiry.


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Roland Mallier. "Evaluating approximations to the optimal exercise boundary for American options." J. Appl. Math. 2 (2) 71 - 92, 8 May 2002.


Published: 8 May 2002
First available in Project Euclid: 30 March 2003

zbMATH: 1032.91627
MathSciNet: MR1908342
Digital Object Identifier: 10.1155/S1110757X02000268

Primary: 41A58 , 91B28

Rights: Copyright © 2002 Hindawi

Vol.2 • No. 2 • 8 May 2002
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