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arxiv: 1012.4442 · v2 · pith:L36ARPDWnew · submitted 2010-12-20 · 🧮 math.PR · math.AP· math.OC

On backward stochastic differential equations approach to valuation of American options

classification 🧮 math.PR math.APmath.OC
keywords differentialamericanbackwardequationoptionssolutionsomestochastic
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We consider the problem of valuation of American (call and put) options written on a dividend paying stock governed by the geometric Brownian motion. We show that the value function has two different but related representations: by means of a solution of some nonlinear backward stochastic differential equation and weak solution to some semilinear partial differential equation.

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