ALTERNATIVE CHARACTERIZATIONS OF AMERICAN PUT OPTIONS

Peter Carr, Robert Jarrow, Ravi Myneni

Research output: Contribution to journalArticle

Abstract

We derive alternative representations of the McKean equation for the value of the American put option. Our main result decomposes the value of an American put option into the corresponding European put price and the early exercise premium. We then represent the European put price in a new manner. This representation allows us to alternatively decompose the price of an American put option into its intrinsic value and time value, and to demonstrate the equivalence of our results to the McKean equation.

Original languageEnglish (US)
Pages (from-to)87-106
Number of pages20
JournalMathematical Finance
Volume2
Issue number2
DOIs
StatePublished - 1992

Fingerprint

Alternatives
Values
Decompose
premium
equivalence
Exercise
Equivalence
Demonstrate
American put option
time
Intrinsic value
Premium
Early exercise

Keywords

  • American put options
  • European put options
  • free boundary‐problem
  • local time
  • optimal stopping problem

ASJC Scopus subject areas

  • Accounting
  • Social Sciences (miscellaneous)
  • Finance
  • Economics and Econometrics
  • Applied Mathematics

Cite this

ALTERNATIVE CHARACTERIZATIONS OF AMERICAN PUT OPTIONS. / Carr, Peter; Jarrow, Robert; Myneni, Ravi.

In: Mathematical Finance, Vol. 2, No. 2, 1992, p. 87-106.

Research output: Contribution to journalArticle

Carr, Peter ; Jarrow, Robert ; Myneni, Ravi. / ALTERNATIVE CHARACTERIZATIONS OF AMERICAN PUT OPTIONS. In: Mathematical Finance. 1992 ; Vol. 2, No. 2. pp. 87-106.
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