The implication of missing the optimal-exercise time of an American option.
European Journal of Operational Research(2015)
Abstract
•Upper bounds on the loss from delaying exercise of American options are found.•No knowledge of the optimal policy or price is required for computing bounds.•The bound is valid for both put and call options.•The bound is valid for a variety of underlying asset price dynamics.•We examine the impact of investor risk preferences on value lost using our bounds.
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Key words
Finance,American options,Delaying exercise,Suboptimal exercise policy,Free boundary problem
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