We analyze the regularity of the optimal exercise boundary for the American Put option when the underlying asset pays a discrete dividend at a known time t_d during the lifetime of the option. The ex-dividend asset price process is assumed to follow Black-Scholes dynamics and the dividend amount is a deterministic function of the ex-dividend asset price just before the dividend date. The solution to the associated optimal stopping problem can be characterised in terms of an optimal exercise boundary which, in contrast to the case when there are no dividends, is no longer monotone. In this paper we prove that when the dividend function is positive and concave, then the boundary  tends to 0 as time tends to t_d^- and is non-increasing in a left-hand neighbourhood of t_d. We also show that the exercise boundary is continuous and a high contact principle holds in such a neighbourhood when the dividend function is moreover linearin a neighbourhood of 0.
We analyze the regularity of the optimal exercise boundary for the American Put option when the underlying asset pays a discrete dividend at a known time t_d during the lifetime of the option. The ex-dividend asset price process is assumed to follow Black-Scholes dynamics and the dividend amount is a deterministic function of the ex-dividend asset price just before the dividend date. The solution to the associated optimal stopping problem can be characterised in terms of an optimal exercise boundary which, in contrast to the case when there are no dividends, may no longer be monotone. In this paper we prove that when the dividend function is positive and concave, then the boundary is non-increasing in a left-hand neighbourhood of t_d, and tends to 0 as time tends to t_d^- with a speed that we can characterize. When the dividend function is linear in a neighbourhood of zero, then we show continuity of the exercise boundary and a high contact principle in the left-hand neighbourhood of t_d. When it is globally linear, then right-continuity of the boundary and the high contact principle are proved to hold globally. Finally, we show how all the previous results can be extended to multiple dividend payment dates in that case.
R
is no longer
may no longer be
A
is non-increasing in a left-hand neighbourhood of t_d, and
R
and is non-increasing in a left-hand neighbourhood of t_d. We also show that
with a speed that we can characterize. When the dividend function is linear in a neighbourhood of zero, then we show continuity of
D
is continuous
R
holds in such a neighbourhood when the dividend function is moreover linearin a neighbourhood of 0.
in the left-hand neighbourhood of t_d. When it is globally linear, then right-continuity of the boundary and the high contact principle are proved to hold globally. Finally, we show how all the previous results can be extended to multiple dividend payment dates in that case.