Artikel
Rationality parameter for exercising American put
In this paper, irrational exercise behavior of the buyer of an American put is characterized by a single parameter. We model irrational exercise rules as the first jump time of a point processes with stochastic intensity. By the rationality parameter, we parameterize a family of stochastic intensities that depends on the value of the put itself. We present a probabilistic proof that the value of the American put using the irrational exercise rule converges to the arbitrage-free price as the rationality parameter converges to infinity. Another application of this result is the penalty method for approximating the price of an American put.
- Language
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Englisch
- Bibliographic citation
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Journal: Risks ; ISSN: 2227-9091 ; Volume: 3 ; Year: 2015 ; Issue: 2 ; Pages: 103-111 ; Basel: MDPI
- Classification
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Wirtschaft
- Subject
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behavioral modeling
irrational exercise rule
partial differential equation
penalty method
- Event
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Geistige Schöpfung
- (who)
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Gad, Kamille Sofie Tågholt
Pedersen, Jesper Lund
- Event
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Veröffentlichung
- (who)
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MDPI
- (where)
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Basel
- (when)
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2015
- DOI
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doi:10.3390/risks3020103
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Artikel
Associated
- Gad, Kamille Sofie Tågholt
- Pedersen, Jesper Lund
- MDPI
Time of origin
- 2015
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