The early exercise premium for the American put under discrete dividends

O.E. Göttsche; M.H. Vellekoop

doi:10.1111/j.1467-9965.2010.00427.x

The early exercise premium for the American put under discrete dividends

O.E. Göttsche, M.H. Vellekoop

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Abstract

We derive an integral equation for the early exercise boundary of an American put option under Black–Scholes dynamics with discrete dividends at fixed times during the lifetime of the option. Our result is a generalization of the results obtained by Carr, Jarrow, and Myneni; Jacka; and Kim for the case without discrete dividends, and it requires a careful study of Snell envelopes for semimartingales with discontinuities.

Original language	English
Pages (from-to)	335-354
Number of pages	20
Journal	Mathematical finance
Volume	21
Issue number	2
DOIs	https://doi.org/10.1111/j.1467-9965.2010.00427.x
Publication status	Published - 2011

Keywords

MSC-91G20
Discrete dividends
Free boundary problems
American options
Optimal stopping

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10.1111/j.1467-9965.2010.00427.x

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abstract = "We derive an integral equation for the early exercise boundary of an American put option under Black–Scholes dynamics with discrete dividends at fixed times during the lifetime of the option. Our result is a generalization of the results obtained by Carr, Jarrow, and Myneni; Jacka; and Kim for the case without discrete dividends, and it requires a careful study of Snell envelopes for semimartingales with discontinuities.",

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AU - Vellekoop, M.H.

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PY - 2011

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N2 - We derive an integral equation for the early exercise boundary of an American put option under Black–Scholes dynamics with discrete dividends at fixed times during the lifetime of the option. Our result is a generalization of the results obtained by Carr, Jarrow, and Myneni; Jacka; and Kim for the case without discrete dividends, and it requires a careful study of Snell envelopes for semimartingales with discontinuities.

AB - We derive an integral equation for the early exercise boundary of an American put option under Black–Scholes dynamics with discrete dividends at fixed times during the lifetime of the option. Our result is a generalization of the results obtained by Carr, Jarrow, and Myneni; Jacka; and Kim for the case without discrete dividends, and it requires a careful study of Snell envelopes for semimartingales with discontinuities.

KW - MSC-91G20

KW - Discrete dividends

KW - Free boundary problems

KW - American options

KW - Optimal stopping

U2 - 10.1111/j.1467-9965.2010.00427.x

DO - 10.1111/j.1467-9965.2010.00427.x

M3 - Article

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VL - 21

SP - 335

EP - 354

JO - Mathematical finance

JF - Mathematical finance

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ER -

The early exercise premium for the American put under discrete dividends

Abstract

Keywords

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