%0 Journal Article
%A Little, Thomas
%T The Free Boundary for the American Put Option
%D 2020
%R 10.3905/jod.2020.1.114
%J The Journal of Derivatives
%P 9-21
%V 28
%N 2
%X The free boundary of the American put option is analytically characterized via new and exact formulae. New, accurate short-time asymptotics are an immediate corollary of these analytical results. The free boundary is also represented formulaically throughout all tenors by a simple two-parameter generalized Gaussian functional form.TOPICS: Options, fundamental equity analysis, statistical methodsKey Findings• First exact formula for the free boundary (early exercise boundary) of the American put option in terms of the exogenous inputs: risk-free rate, volatility, and a boundary dependent integral.• A simple and accurate asymptotics formula for the free boundary of the American put option near expiration.• An empirical solution (possibly exact) of the free boundary as a two-parameter generalized Gaussian functional form.
%U https://jod.pm-research.com/content/iijderiv/28/2/9.full.pdf