We examine the American option prices and optimal exercise strategies where the
volatilities of the underlying assets change over time. When the volatility is a
known function of time, European option price depends only on the average volatility
during the remaining life of the option. But American option prices are not same
when the volatility follows different path with the same average. When volatility is
decreasing over time, the American option value is higher than the value with
constant volatility, and option value with increasing volatility is lower than the
option value with constant volatility. These results are due to the early exercise
feature of the American options. When the volatility is decreasing, there seem to be
much chance of early-exercise.
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공지사항
[2002년 제 2차] Valuing American Options under Time-Varying Volatil
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2003-07-12
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