CLOSED-FORM SOLUTIONS OF AMERICAN PERPETUAL PUT OPTION UNDER A STRUCTURALLY CHANGING ASSET
CLOSED-FORM SOLUTIONS OF AMERICAN PERPETUAL PUT OPTION UNDER A STRUCTURALLY CHANGING ASSET
- 주제(키워드) option pricing , american perpetual options , change point process , structuaral changes , optimal stopping time
- 발행기관 한국산업응용수학회
- 발행년도 2011
- 총서유형 Journal
- UCI G704-001547.2011.15.2.005
- KCI ID ART001562987
- 본문언어 영어
초록/요약
Typically, it is hard to find a closed form solution of option pricing formula under an asset governed by a change point process. In this paper we derive a closed-form solution of the valuation function for an American perpetual put option under an asset having a change point. Structural changes are formulated through a change-point process with a Markov chain. The modified smooth-fit technique is used to obtain the closed-form valuation function. We also guarantee the optimality of the solution via the proof of a corresponding verification theorem. Numerical examples are included to illustrate the results.
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