A new form of the early exercise premium for American type derivatives. (June 2019)

• Record Type: Journal Article
• Authors: Zaevski, Tsvetelin S.
• Is Part Of: Chaos, solitons and fractals. Volume 123(2019)
• Page Start: 338
• Page End: 340
• Publication Date: 2019-06
• Subjects: Stopping times -- American derivatives -- Free boundary -- Early exercise premium; C41 -- G12 -- G13; 35R35 -- 35Q91 -- 60G44 -- 91G20; Chaotic behavior in systems -- Periodicals; Solitons -- Periodicals; Fractals -- Periodicals; Chaotic behavior in systems; Fractals; Solitons; Periodicals; 003.7
• DOI: 10.1016/j.chaos.2019.04.024
• Languages: English
• ISSNs: 0960-0779

Abstract

Highlights: Finding a new form of the early exercise premium for American derivatives. Stating the second form of this premium. Deriving the form for the American put. Working in a quite large framework. Giving an example for a discontinuous payment structure - convertible bond. Abstract: The purpose of this short paper is to present a new form of the so called early exercise premium for the American type derivatives. The decomposition we derived consists of the corresponding European derivative and a derivative with a stochastic maturity. In different particular cases we reach to the well known form for the American put option where the underlying asset is driven by a Brownian motion or a Lévy process.