A numerical method to determine the optimal stopping boundary for installment optionKarim Ivaz, Ali Beiranvand (pp. 223-235)
In this paper we consider the European continuous installment call option on foreign currency exchange rate as underlying asset. Using the Black-Scholes model as the underlying asset model and applying arbitrage pricing theory, we get the parabolic partial differential equation governing the value of installment option. Then, to determine the location of the stopping boundary and the value of the European installment option, the front fixing method will be applied.
installment option, Black-Scholes model, foreign currency, front fixing method, free boundary problem.