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THE EARLY EXERCISE PREMIUM FOR THE AMERICAN PUT UNDER DISCRETE DIVIDENDS
Author(s) -
Göttsche O. E.,
Vellekoop M. H.
Publication year - 2011
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2010.00427.x
Subject(s) - dividend , generalization , classification of discontinuities , economics , mathematical economics , black–scholes model , carr , discrete time and continuous time , boundary (topology) , econometrics , mathematics , financial economics , mathematical analysis , finance , statistics , volatility (finance) , ecology , biology
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.