Valuation of American strangle option: Variational inequality approach

Junkee Jeon; Jehan Oh

doi:10.3934/dcdsb.2018206

Valuation of American strangle option: Variational inequality approach

Junkee Jeon
, Jehan Oh

Seoul National University

Research output: Contribution to journal › Article › peer-review

6 Scopus citations

Abstract

In this paper, we investigate a parabolic variational inequality problem associated with the American strangle option pricing. We obtain the existence and uniqueness of W^2,1 _p,loc solution to the problem. Also, we analyze the smoothness and monotonicity of two free boundaries. Finally, numerical results of the model based on this problem are described and used to show the boundary properties and the price behavior.

Original language	English
Pages (from-to)	755-781
Number of pages	27
Journal	Discrete and Continuous Dynamical Systems - Series B
Volume	24
Issue number	2
DOIs	https://doi.org/10.3934/dcdsb.2018206
State	Published - Feb 2019

Keywords

American strangle options
Free boundary problem
Option pricing
Variational inequality

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10.3934/dcdsb.2018206

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title = "Valuation of American strangle option: Variational inequality approach",

abstract = "In this paper, we investigate a parabolic variational inequality problem associated with the American strangle option pricing. We obtain the existence and uniqueness of W2,1 p,loc solution to the problem. Also, we analyze the smoothness and monotonicity of two free boundaries. Finally, numerical results of the model based on this problem are described and used to show the boundary properties and the price behavior.",

keywords = "American strangle options, Free boundary problem, Option pricing, Variational inequality",

author = "Junkee Jeon and Jehan Oh",

year = "2019",

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doi = "10.3934/dcdsb.2018206",

language = "English",

volume = "24",

pages = "755--781",

journal = "Discrete and Continuous Dynamical Systems - Series B",

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publisher = "American Institute of Mathematical Sciences",

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T2 - Variational inequality approach

AU - Jeon, Junkee

AU - Oh, Jehan

PY - 2019/2

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N2 - In this paper, we investigate a parabolic variational inequality problem associated with the American strangle option pricing. We obtain the existence and uniqueness of W2,1 p,loc solution to the problem. Also, we analyze the smoothness and monotonicity of two free boundaries. Finally, numerical results of the model based on this problem are described and used to show the boundary properties and the price behavior.

AB - In this paper, we investigate a parabolic variational inequality problem associated with the American strangle option pricing. We obtain the existence and uniqueness of W2,1 p,loc solution to the problem. Also, we analyze the smoothness and monotonicity of two free boundaries. Finally, numerical results of the model based on this problem are described and used to show the boundary properties and the price behavior.

KW - American strangle options

KW - Free boundary problem

KW - Option pricing

KW - Variational inequality

UR - https://www.scopus.com/pages/publications/85056609457

U2 - 10.3934/dcdsb.2018206

DO - 10.3934/dcdsb.2018206

M3 - Article

AN - SCOPUS:85056609457

SN - 1531-3492

VL - 24

SP - 755

EP - 781

JO - Discrete and Continuous Dynamical Systems - Series B

JF - Discrete and Continuous Dynamical Systems - Series B

IS - 2

ER -

Valuation of American strangle option: Variational inequality approach

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