Boundary Value Problems
Volume 2006 (2006), Article ID 32835, 14 pages
The American straddle close to expiry
1Department of Mathematics and Statistics, College of Arts and Sciences, American University of Sharjah, P.O. Box 26666, Sharjah, United Arab Emirates
2Department of Applied Mathematics, University of Western Ontario, London N6A 5B7, ON, Canada
Received 23 August 2005; Revised 26 December 2005; Accepted 22 March 2006
Copyright © 2006 Ghada Alobaidi and Roland Mallier. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
We address the pricing of American straddle options. We use a
technique due to Kim (1990) to derive an expression involving
integrals for the price of such an option close to expiry. We then
evaluate this expression on the dual optimal exercise boundaries
to obtain a set of integral equations for the location of these
exercise boundaries, and solve these equations close to expiry.