The critical stock price for the American put option

We derive a simple relationship between the critical stock price and the gamma of the American put. We use this relationship to derive the correct expression for the critical stock price as time to maturity goes to zero and an analytic approximation for the in-the-money American put price. We presen...

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Bibliographic Details
Published in:Finance research letters 2011-03, Vol.8 (1), p.8-14
Main Authors: Chung, Y. Peter, Johnson, Herb, Polimenis, Vassilis
Format: Article
Language:English
Subjects:
American put option
American put option Critical stock price The gamma of the put
Approximation
Critical stock price
Maturity
Put & call options
Stock prices
Studies
The gamma of the put
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Summary:We derive a simple relationship between the critical stock price and the gamma of the American put. We use this relationship to derive the correct expression for the critical stock price as time to maturity goes to zero and an analytic approximation for the in-the-money American put price. We present simple, analytical expressions for the critical stock price.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2010.07.001