Analytic solution for American strangle options using Laplace-Carson transforms

作者：Kang Myungjoo; Jeon Junkee^*; Han Heejae; Lee Somin

来源：Communications in Nonlinear Science & Numerical Simulation, 2017, 47: 292-307.

DOI：10.1016/j.cnsns.2016.11.024

• American strangle options
• Free boundary problems
• Laplace-Carson transforms
• Numerical Laplace inversion

A strangle has been important strategy for options when the trader believes there will be a large movement in the underlying asset but are uncertain of which way the movement will be. In this paper, we derive analytic formula for the price of American strangle options. American strangle options can be mathematically formulated into the free boundary problems involving two early exercise boundaries. By using Laplace-Carson Transform(LCT), we can derive the nonlinear system of equations satisfied by the transformed value of two free boundaries. We then solve this nonlinear system using Newton's method and finally get the free boundaries and option values,using numerical Laplace inversion techniques. We also derive the Greeks for the American strangle options as well as the value of perpetual American strangle options. Furthermore, we present various graphs for the free boundaries and option values according to the change of parameters.

• 出版日期2017-6