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American Options

  • Jürgen FrankeEmail author
  • Wolfgang Karl Härdle
  • Christian Matthias Hafner
Chapter
Part of the Universitext book series (UTX)

Abstract

Pricing American options is a more complex task than for European options since they can be exercised any time up to expiry. The moment the holder chooses to exercise the options depends on the spot price of the underlying asset S t . In this sense the exercising time is a random variable itself. The Black-Scholes differential equation continues to hold as long as the options are not exercised. However, the boundary conditions are so complicated that an analytic solution is not possible. In this section we study American options in more detail while the numerical procedures of pricing will be discussed in the next section.

Keywords

Option Price American Option Strike Price Underlying Asset Spot Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  • Jürgen Franke
    • 1
    Email author
  • Wolfgang Karl Härdle
    • 2
    • 3
  • Christian Matthias Hafner
    • 4
  1. 1.FB MathematikTU KaiserslauternKaiserslauternGermany
  2. 2.Ladislaus von Bortkiewicz Chair of Statistics C.A.S.E. Centre for Applied Statistics and Economics School of Business and EconomicsHumboldt-Universität zu BerlinBerlinGermany
  3. 3.Graduate Institute of StatisticsNational Central UniversityJhongliTaiwan
  4. 4.Inst. StatistiqueUniversité Catholique de LouvainLeuven-la-NeuveBelgium

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