Smooth Pasting as Rate of Return Equalization

We further elucidate the smooth pasting condition behind optimal early exercise of options. It is easy to show that smooth pasting implies rate of return equalization between the option and the levered position that results from exercise. This yields new economic insights into the optimal early exercise condition that the option holder faces

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Year of publication:	[2005]
Authors:	Sodal, Sigbjorn
Other Persons:	Shackleton, Mark B. (contributor)
Publisher:	[2005]: [S.l.] : SSRN

Extent:	1 Online-Ressource (8 p)
Type of publication:	Book / Working Paper
Notes:	In: Economics Letters, Vol. 89, No. 2, pp. 200-206, November 2005
Classification:	G31 - Capital Budgeting; Investment Policy ; D92 - Intertemporal Firm Choice and Growth, Investment, or Financing ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10012784763