RT Journal Article
SR Electronic
T1 On Perpetual American Strangles
JF The Journal of Derivatives
FD Institutional Investor Journals
SP 82
OP 97
DO 10.3905/JOD.2009.16.4.082
VO 16
IS 4
A1 Franck Moraux
YR 2009
UL https://pm-research.com/content/16/4/82.abstract
AB This article analyzes perpetual American strangles with no recourse to advanced numerical techniques. Our analytical approach rests on an analogy with asymmetric rebates of double knock-out barrier options. The optimal exercise policy is modeled by a couple of boundaries that simultaneously solve a system of two nonlinear equations. Numerical investigations then highlight salient features of American strangles and compare them with portfolios of options that may be used as proxies. Overall, results show that these latter are significantly upward biased in terms of prices and that, more dramatically, they lead the holder to exercise inappropriately.TOPICS: Options, statistical methods