Early exercise boundary regularity close to expiry in the indifference setting: A PDE approach
(English)Article in journal (Other academic) Submitted
The free boundary problem that occurs when pricing American options is studied in a general setting. We investigate the regularity of the free boundary close to initial state using the so called blow-up technique. This problem has been studied extensively and good results are known for the linear, one-dimensional case. The blow-up technique, however, works also for non-linear PDE in higher dimensions. For illustration we apply the technique to the indierence pricing model where the involved PDE is non-linear.
American option, obstacle problem, blow-up, indifference pricing
IdentifiersURN: urn:nbn:se:kth:diva-8544OAI: oai:DiVA.org:kth-8544DiVA: diva2:13896
QS 20122008-05-292008-05-292012-03-26Bibliographically approved