Abstract
We investigate an American exchange option (AEO) pricing problem. Under the perfect market assumption, an AEO pricing problem can be modeled as a free boundary problem (FBP). The FBP is converted into an integral equation by using the Green’s function. When the expiration date tends to infinity, we obtain a time-invariant constant of the exercise boundary. Moreover, we provide a pricing formula for valuating the early exercise premium of the perpetual AEO.
Citation
Ming-Long Liu. Hsuan-Ku Liu. "SOLVING A TWO VARIABLES FREE BOUNDARY PROBLEM ARISING IN A PERPETUAL AMERICAN EXCHANGE OPTION PRICING MODEL." Taiwanese J. Math. 13 (5) 1475 - 1488, 2009. https://doi.org/10.11650/twjm/1500405554
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