Year: 2026
Type: preprint
Abstract: We study a jointly exercised American condor contract whose payoff is a call condor payoff plus a positive cash amount. Its plateau and positive tails produce two inner exercise boundaries and two outer cash-exercise boundaries. We construct the unique bounded solution of the associated variational inequality, strong on each side of the plateau, and identify it with the optimal stopping value. We prove monotonicity and continuity of the four boundaries and determine their limits at expiry. Following Broadie and Detemple, we express the inner boundaries as cutoffs of the boundaries of uncapped contracts with the same cash components. We also prove call-side convexity and volatility monotonicity under a sufficient condition, solve the stationary problems explicitly and present numerical results.
Source: arXiv (Cornell University)
Authors: Jung, Kiyuob, Oh, Jehan, Woo, Namgwang
Institutions: Michigan State University, Kyungpook National University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Awards: G1351423076, G1536775404
OpenAlex ID: W7214090070