A Unified Approach To Determining The Early Exercise Boundary Position At Expiry For American Style Of General Class Of Derivatives
Source: Comenius University
In this paper, the authors present a unified method for calculating the limit of early exercise boundary at expiry. They price American style of general derivative using a formula expressed as a sum of the value of European style of derivative and so called American premium. They use the latter expression to calculate an analytic formula for limit of early exercise boundary at expiry. Method applied on American style plain vanilla, Asian and look back options yields identical results with already known values. Results for selected American style of derivative strategies are compared with limits calculated by the PSOR method.