Smooth pasting (also called high-contact condition) is a kind of
boundary condition
In mathematics, in the field of differential equations, a boundary value problem is a differential equation together with a set of additional constraints, called the boundary conditions. A solution to a boundary value problem is a solution to ...
used to model the
American option In finance, the style or family of an option is the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) options. These options� ...
.
It tells that the American
option value
Option or Options may refer to:
Computing
*Option key, a key on Apple computer keyboards
*Option type, a polymorphic data type in programming languages
*Command-line option, an optional parameter to a command
*OPTIONS, an HTTP request method
...
is maximized by an exercise strategy that makes the option value and
option delta
In mathematical finance, the Greeks are the quantities representing the sensitivity of the price of derivatives such as options to a change in underlying parameters on which the value of an instrument or portfolio of financial instruments is depend ...
continuous.
References
;Sources
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Options traders
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