Boundary Value Problems
Volume 2006 (2006), Article ID 32835, 14 pages
doi:10.1155/BVP/2006/32835
The American straddle close to expiry
Ghada Alobaidi1
and Roland Mallier2
1Department of Mathematics and Statistics, College of Arts and Sciences, American University of Sharjah, P.O. Box 26666, Sharjah, United Arab Emirates
2Department of Applied Mathematics, University of Western Ontario, London N6A 5B7, ON, Canada
Abstract
We address the pricing of American straddle options. We use a technique due to Kim (1990) to derive an expression involving integrals for the price of such an option close to expiry. We then evaluate this expression on the dual optimal exercise boundaries to obtain a set of integral equations for the location of these exercise boundaries, and solve these equations close to expiry.