Green's Functions and American Options

Ghada Alobaidi, Roland Mallier

Abstract



We use a classical Green's function approach to study American options. Dual integral equations are derived for the location of the free boundary and an asymptotic expansion is used to find the location of the free boundary close to expiry. Using our results, we demonstrate that it is possible to replicate the American call with D less then r and the American put with D less then r with European options.

Keywords


American options, Green's functions, asymptotics, free boundary.



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