Asymptotics of American Floating Strike Lookback Put Option Pricing
19 Pages Posted: 10 Aug 2009
Date Written: February 23, 2009
Abstract
We examine an American floating strike lookback put option, under the Black and Scholes model. This corresponds to a moving boundary problem for a PDE. We apply singular perturbation methods to compute the moving boundary, as well as the full solution to the PDE. We analyze the problem in the limit of small p = 2r/o2, with d = q/r fixed, where r is the interest rate, q is the dividend yield and o is the volatility. We employ the ray method of geometrical optics and matched asymptotic expansions.
Suggested Citation: Suggested Citation
Hu, Fannu and Knessl, Charles, Asymptotics of American Floating Strike Lookback Put Option Pricing (February 23, 2009). Available at SSRN: https://ssrn.com/abstract=1445019 or http://dx.doi.org/10.2139/ssrn.1445019
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