This paper examines the valuation of call options on the minimum of two
dividend-paying assets. We show that the optimal exercise boundary consists
of three components, two continuous curves and one component along the
diagonal with empty interior. The option price is shown to satisfy the early
exercise premium representation in which the gains from exercise involve the
local time of the minimum of the two underlying asset prices. A system of
recursive integral equations for the exercise boundary components is
derived. Using a class of simple stopping times we also construct lower and
upper bounds for the American call min-option price: these are easy to
compute and can be employed to design efficient approximations of the
contract value.
Publié le : 2003-08-14
Classification:
Option valuation,
calls,
American-style,
minimum of two assets,
dividends,
exercise premium,
local time,
lower and upper bounds,
numerical computation,
91B28,
60G40,
62L15
@article{1060202832,
author = {Detemple, Jerome and Feng, Shui and Tian, Weidong},
title = {The valuation of American call options on the minimum of two dividend-paying assets},
journal = {Ann. Appl. Probab.},
volume = {13},
number = {1},
year = {2003},
pages = { 953-983},
language = {en},
url = {http://dml.mathdoc.fr/item/1060202832}
}
Detemple, Jerome; Feng, Shui; Tian, Weidong. The valuation of American call options on the minimum of two dividend-paying assets. Ann. Appl. Probab., Tome 13 (2003) no. 1, pp. 953-983. http://gdmltest.u-ga.fr/item/1060202832/