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The free boundary problem of American butterfly option
Author(s) -
Guan Chonghu,
Yi Fahuai
Publication year - 2013
Publication title -
mathematical methods in the applied sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.719
H-Index - 65
eISSN - 1099-1476
pISSN - 0170-4214
DOI - 10.1002/mma.2784
Subject(s) - free boundary problem , mathematics , boundary (topology) , uniqueness , butterfly , boundary value problem , mixed boundary condition , mathematical analysis , mathematical economics , economics , finance
This article aims to characterize behaviors of the free boundary arising from American butterfly option pricing. We prove the existence and uniqueness of the solution and free boundary. And then, we classify the shape of the free boundary under different conditions. The main contribution of this paper is to prove that the free boundary of evolutionary problem converges to the free boundary of stationary problem. Copyright © 2013 John Wiley & Sons, Ltd.