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On a free boundary problem for an American put option under the CEV process (1009.2973v2)
Published 15 Sep 2010 in math.AP and q-fin.PR
Abstract: We consider an American put option under the CEV process. This corresponds to a free boundary problem for a PDE. We show that this free bondary satisfies a nonlinear integral equation, and analyze it in the limit of small $\rho$ = $2r/ \sigma2$, where $r$ is the interest rate and $\sigma$ is the volatility. We use perturbation methods to find that the free boundary behaves differently for five ranges of time to expiry.
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