American Option Pricing with Time-Varying Parameters
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.
KeywordsOption pricing Time-varying parameters American put option Black–scholes equation
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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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