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arXiv · 1701.01515

Analytic properties of American option prices under a modified Black-Scholes equation with spatial fractional derivatives

Wenting Chen·Kai Du·Xinzi Qiu
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Abstract

This paper investigates analytic properties of American option prices under the finite moment log-stable (FMLS) model. Under this model the price of American options is characterised by the free boundary problem of a fractional partial differential equation (FPDE) system. Using the technique of approximation we prove that the American put price under the FMLS model is convex with respect the underlying price, and specify the impact of the tail index on option prices.

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Wenting Chen, Kai Du, Xinzi Qiu. 2017-01-06. Analytic properties of American option prices under a modified Black-Scholes equation with spatial fractional derivatives. https://doi.org/10.1016/j.physa.2017.08.068

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