Asymptotics of American Floating Strike Lookback Put Option Pricing

19 Pages Posted: 10 Aug 2009

See all articles by Fannu Hu

Fannu Hu

The Hartford

Charles Knessl

University of Illinois at Chicago - Department of Mathematics, Statistics, & Computer Science

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

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

Fannu Hu (Contact Author)

The Hartford ( email )

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Suite 700
Hartford, CT 06105
United States

Charles Knessl

University of Illinois at Chicago - Department of Mathematics, Statistics, & Computer Science ( email )

322 Science and Engineering Offices (SEO)
Chicago, IL 60607
United States

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