Installment options close to expiry

Alobaidi, G.; Mallier, R.

doi:https://doi.org/10.1155/JAMSA/2006/60824

International Journal of Stochastic Analysis

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Volume 2006 | Article ID 060824 | https://doi.org/10.1155/JAMSA/2006/60824

Installment options close to expiry

G. Alobaidi¹and R. Mallier²

Received06 Dec 2005

Revised05 Jun 2006

Accepted31 Jul 2006

Published27 Sept 2006

Abstract

We use an asymptotic expansion to study the behavior of installment options close to expiry. Installment options are contracts where the price is paid over the life of the option rather than as a lump sum at the time of purchase, and where the contract can be allowed to lapse at any time. Series solutions are obtained for the location of the free boundary and the price of the option.

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Copyright

Copyright © 2006 G. Alobaidi and R. Mallier. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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