Acta mathematica scientia,Series A ›› 2012, Vol. 32 ›› Issue (6): 1056-1062.

• Articles • Previous Articles     Next Articles

Pricing of Perpetual American Put with Fast Diffusion Process

 PENG Da-Heng   

  1. School of Finance, Guangdong University of Business Studies, Guangzhou |510320
  • Received:2011-12-22 Revised:2012-10-22 Online:2012-12-25 Published:2012-12-25
  • Supported by:

    教育部人文社会科学研究规划基金(10YJA630122)资助

Abstract:

This paper studies the price of perpetual American put with fast diffusion process. Firstly, using literature [3], the price of European put option is given when the underlying asset follows fast diffusion process, then the closed-form solutions for pricing of perpetual American put and the critical asset price when the underlying asset's price follows fast diffusion process are obtained by solving a free boundary
value problem. Results obtained here are the extension of the corresponding one in the Black-Scholes market.

Key words: Fast diffusion, Perpetual American put, Quadratic approximation

CLC Number: 

  • 91B28
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