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arXiv · 1009.2973

On a free boundary problem for an American put option under the CEV process

Miao Xu·Charles Knessl
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Abstract

We consider an American put option under the CEV process. This corresponds to a free boundary problem for a PDE. We show that this free bondary satisfies a nonlinear integral equation, and analyze it in the limit of small $ρ$ = $2r/ σ^2$, where $r$ is the interest rate and $σ$ is the volatility. We use perturbation methods to find that the free boundary behaves differently for five ranges of time to expiry.

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Miao Xu, Charles Knessl. 2010-09-19. On a free boundary problem for an American put option under the CEV process. https://arxiv.org/abs/1009.2973

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