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NONCONVEXITY OF THE OPTIMAL EXERCISE BOUNDARY FOR AN AMERICAN PUT OPTION ON A DIVIDEND‐PAYING ASSET
Author(s) -
Chen Xinfu,
Cheng Huibin,
Chadam John
Publication year - 2013
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.1467-9965.2011.00500.x
Subject(s) - asset (computer security) , dividend , geometric brownian motion , boundary (topology) , economics , regular polygon , dividend yield , brownian motion , econometrics , interest rate , asian option , put option , mathematical economics , financial economics , mathematics , valuation of options , finance , computer science , dividend policy , mathematical analysis , geometry , diffusion process , statistics , computer security , economy , service (business)
We prove that when the dividend rate of the underlying asset following a geometric Brownian motion is slightly larger than the risk‐free interest rate, the optimal exercise boundary of the American put option is not convex.