American Put Options on Zero-Coupon Bonds and a Parabolic Free Boundary Problem

Authors

  • Hongtao Yang

Keywords:

American put option, zero-coupon bond, optimal exercise boundary, free boundary problem, uniqueness, existence.

Abstract

In this paper we study American put options on zero-coupon bonds under the CIR model of short interest rates. The uniqueness of the optimal exercise boundary and the solution existence and uniqueness of a degenerate parabolic free boundary problem are established. Numerical examples are also presented to confirm theoretical results.

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Published

2004-01-01

Issue

Vol. 1 No. 2 (2004)

Section

Articles