A comparison principle for an American option on several assets: Index and spread options
Southwest Texas State University, Department of Mathematics
Using the method of symmetrization, we compare the price of the American option on an index or spread to that of the solution of a parabolic variational inequality in one spatial variable. This comparison principle is established for a broad class of diffusion operators with time and state dependent coefficients. The purpose is to take a first step towards deriving symmmetrized problems whose solutions bound solutions of multidimensional American option problems with variable coefficients when the computation of the latter lies beyond the scope of the most powerful numerical methods.
American options, Variational inequalities, Free boundary, Parabolic equations, Finance, Symmetrization, Optimal stopping, Rearrangements
Laurence, P., & Stredulinsky, E. (2003). A comparison principle for an American option on several assets: Index and spread options. <i>Electronic Journal of Differential Equations, 2003</i>(74), pp. 1-26.
Attribution 4.0 International