Journal of Financial and Quantitative Analysis Vol. 18 No. 1 1983
An Analytic Approximation for the American Put Price
Abstract
Black and Scholes [1] derived the pricing equation for a European put when the stock price follows geometric Brownian motion. For this same case, Merton [5] derived the pricing equation for an American put with infinite time to maturity. Brennan and Schwartz [2], Rubinstein and Cox [7], and Parkinson [6] have developed numerical solutions for the price of an American put. Numerical solutions are expensive and do not provide much intuition. Naturally, an analytic solution would be much preferred; unfortunately, pricing the American put requires solving a formidable and presumably intractable boundary value problem.
- DOI
- 10.2307/2330809
- Volume
- 18
- Issue
- 1
- Pages
- 141
- Sources
- openalex crossref