PERPETUAL CANCELLABLE AMERICAN CALL OPTION

DOI10.1111/J.1467-9965.2011.00479.XMaRDI QIDQ4919614zbMATH OpenOpenAlexFDO

Authors Thomas Emmerling

Publication date 14 May 2013

Published in Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1009.3556

zbMATH Keywords

American-style derivativescancellable call optionDynkin gamesgame optionsIsraeli optionsperpetual call option

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Abstract: This paper examines the valuation of a generalized American-style option known as a Game-style call option in an infinite time horizon setting. The specifications of this contract allow the writer to terminate the call option at any point in time for a fixed penalty amount paid directly to the holder. Valuation of a perpetual Game-style put option was addressed by Kyprianou (2004) in a Black-Scholes setting on a non-dividend paying asset. Here, we undertake a similar analysis for the perpetual call option in the presence of dividends and find qualitatively different explicit representations for the value function depending on the relationship between the interest rate and dividend yield. Specifically, we find that the value function is not convex when $r>d$. Numerical results show the impact this phenomenon has upon the vega of the option.

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Cited in

(15)

• Dynkin's games and Israeli options
• Stopping spikes, continuation bays and other features of optimal stopping with finite-time horizon
• Perpetual game options with a multiplied penalty
• A zero-sum Poisson stopping game with asymmetric signal rates
• A pricing analysis of American option with callable feature
• Minimum guaranteed payments and costly cancellation rights: a stopping game perspective
• CALLABLE PUTS AS COMPOSITE EXOTIC OPTIONS
• GAME CALL OPTIONS REVISITED
• Perpetual cancellable American options with convertible features
• On the American style futures contracts
• On the impact of the penalty on the cancellable American options
• Nonzero-sum games of optimal stopping for Markov processes
• Pricing formulas for American perpetual knock-out and callable volatility options
• Pricing finite maturity game call options with convertible features
• Properties of game options

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