On perpetual American strangles

Franck Moraux (1)

1 CREM - Centre de recherche en économie et management

This paper analyzes perpetual American strangles with no recourse to advanced numerical techniques. Our analytical approach rests on an analogy with asymmetric rebates of Double Knock-Out Barrier Options. The optimal exercise policy is modelled by a couple of boundaries that simultaneously solve a system of two non linear equations. Numerical investigations then highlight salient features of American strangles and compare them with portfolios of options which may be used as proxies. Overall, results show that these latter are significantly upward biased in terms of prices and that, more dramatically, they lead the holder to exercise inappropriately

Mots clés: American Options; American Strangles; Double Barrier Options; Pricing; Hedging; Early Exercise

Domaines: Gestion et management

Franck Moraux. On perpetual American strangles. The Journal of Derivatives, 2009, 4, pp.82-97. ⟨halshs-00393811⟩