Affiliation:
1. American University of Sharjah, P.O. Box 26666, Sharjah, UAE
Abstract
We connect the exercisability randomized American option to the penalty method by showing that the randomized American option valueuis the uniqueclassicalsolution to the Cauchy problem corresponding to thecanonicalpenalty problem for American options. We also establish a uniform bound forAu, whereAis the infinitesimal generator of a geometric Brownian motion.