Abstract:

The authors mainly studied the numerical method for valuing American lookback put options under the BlackScholes model. Applying the finite difference method, we obtained the discretization form of the BlackScholes equation, which was used to solve the option value, and we got the optimal exercise boundary by Newton’s method. Solving this problem by the two method in turn, we can get the option price and the optimal exercise boundary simultaneously. Numerical experiments verify the efficiency of the method.

Key words: BlackScholes model, American lookback put option, optimal exercise boundary