Valuation for an American Continuous-Installment Put Option on Bond under Vasicek Interest Rate Model

Valuation for an American Continuous-Installment Put Option on Bond under Vasicek Interest Rate Model

The valuation for an American continuous-installment put option on zero-coupon bond is considered by Kim’s equations under a single factor model of the short-term interest rate, which follows the famous Vasicek model. In term of the price of this option, integral representations of both the optimal stopping and exercise boundaries are derived. A numerical method is used to approximate the optim...

Valuation of American Continuous-Installment Options

We present three approaches to value American continuous-installment calls and puts and compare their computational precision. In an American continuous-installment option, the premium is paid continuously instead of up-front. At or before maturity, the holder may terminate payments by either exercising the option or stopping the option contract. Under the usual assumptions, we are able to cons...

An Analytic Solution for a Vasicek Interest Rate Convertible Bond Model

Valuation of installment option by penalty method

In this paper, installment options on the underlying asset which evolves according to Black-Scholes model and pays constant dividend to its owner will be considered. Applying arbitrage pricing theory, the non-homogeneous parabolic partial differential equation governing the value of installment option is derived. Then, penalty method is used to value the European continuous installment call opt...

Valuation of European Installment Put Options — Variational Inequality Approach 1

Abstract: In this paper we consider a parabolic variational inequality arising from the valuation of European installment put options. We prove the existence and uniqueness of the solution to the problem. Moreover, we obtain C∞ regularity and the bounds of the free boundary. Eventually we show its numerical result by the binomial method.