Abstract
In this paper, we derive an analytic formula for the American knock-out options with rebate. Rather than using a probabilistic method, we use the Laplace–Carson Transform(LCT) method to induce a simple functional equation associated with the complex problem of option pricing Partial Differential equation with free boundary. The transformed value of free boundary could be solved by applying Newton’s method. Lastly, numerical Laplace inversion techniques are used to solve for the wanted free boundary value and the options value.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
