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A note on American options with varying exercise price

Published online by Cambridge University Press:  17 February 2009

J. N. Dewynne  and
P. Wilmott
J. N. Dewynne
Affiliation:
Department of Mathematics, University of Southampton, Southampton, SO17 IBJ, England.
P. Wilmott
Affiliation:
Mathematical Inst., Oxford University, Oxford, England, and Dept. of Math., Imperial College, London, England.
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Abstract

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We examine the valuation of American options in a discrete time setting where the exercise price is known a priori but varies with time. (This is in contrast with the classical Black-Scholes [2] analysis, which lies in a continuous time framework and with constant exercise price.) In particular we consider a time series of exercise prices which are themselves a realisation of the share price random walk — that of the previous year, say.

Type
Research Article
Information
The ANZIAM Journal , Volume 37 , Issue 1 , July 1995 , pp. 45 - 57
Copyright
Copyright © Australian Mathematical Society 1995

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