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American Option Pricing with Time-Varying Parameters

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Proceedings of the Seventh International Conference on Management Science and Engineering Management

Part of the book series: Lecture Notes in Electrical Engineering ((LNEE,volume 241))

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Abstract

In this paper, we provide an explicit formula for American option pricing on a dividend-paying equity when the parameters in Black–Scholes equation are time dependent. By using a general transformation, the option value is shown as an explicit formula which is based on the value of American option with constant parameters. Finally, the optimal boundary of American option is given.

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References

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Acknowledgments

This work was supported by the Special Funds of Sichuan University of the Fundamental Research Funds for the Central Universities (SKQY201330).

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Authors and Affiliations

  1. School of Business, Sichuan University, Chengdu, 610064, People’s Republic of China

    Meng Wu

  2. Department of Mathematics, Sichuan University, Chengdu, 610064, People’s Republic of China

    Nanjing Huang & Huiqiang Ma

Authors
  1. Meng Wu
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  2. Nanjing Huang
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  3. Huiqiang Ma
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Corresponding author

Correspondence to Meng Wu .

Editor information

Editors and Affiliations

  1. Business School, Sichuan University, Chengdu, China, People's Republic

    Jiuping Xu

  2. Drexel University, Philadelphia, USA

    John A. Fry

  3. LeBow College of Business Department of Decision Sciences, Drexel University, Philadelphia, Pennsylvania, USA

    Benjamin Lev

  4. Azerbaijan National Academy of Sciences, Institute of Cybernetics, Baku, Azerbaijan

    Asaf Hajiyev

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Wu, M., Huang, N., Ma, H. (2014). American Option Pricing with Time-Varying Parameters. In: Xu, J., Fry, J., Lev, B., Hajiyev, A. (eds) Proceedings of the Seventh International Conference on Management Science and Engineering Management. Lecture Notes in Electrical Engineering, vol 241. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-40078-0_38

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