Boundary Value Problems 
Volume 2006 (2006), Article ID 32835, 14 pages
doi:10.1155/BVP/2006/32835

The American straddle close to expiry

Ghada Alobaidi1 and Roland Mallier2

 1Department of Mathematics and Statistics, College of Arts and Sciences, American University of Sharjah, P.O. Box 26666, Sharjah, United Arab Emirates
2Department of Applied Mathematics, University of Western Ontario, London N6A 5B7, ON, Canada
Received 23 August 2005; Revised 26 December 2005; Accepted 22 March 2006

Abstract

We address the pricing of American straddle options. We use a technique due to Kim (1990) to derive an expression involving integrals for the price of such an option close to expiry. We then evaluate this expression on the dual optimal exercise boundaries to obtain a set of integral equations for the location of these exercise boundaries, and solve these equations close to expiry.