On perpetual American options in a multidimensional Black-Scholes model

DOI10.1080/17442508.2021.1993444zbMATH Open1492.91386arXiv1901.00308OpenAlexW3208821360MaRDI QIDQ5094573FDOQ5094573

Authors: Andrzej Rozkosz 

Publication date: 3 August 2022

Published in: Stochastics (Search for Journal in Brave)

Abstract: We consider the problem of pricing perpetual American options written on dividend-paying assets whose price dynamics follow a multidimensional Black and Scholes model. For convex Lipschitz continuous reward functions, we give a probabilistic characterization of the fair price in terms of a reflected BSDE, and an analytical one in terms of an obstacle problem. We also provide the early exercise premium formula.

Full work available at URL: https://arxiv.org/abs/1901.00308

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zbMATH Keywords

backward stochastic differential equationobstacle problemperpetual American option

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Stopping times; optimal stopping problems; gambling theory (60G40) Applications of stochastic analysis (to PDEs, etc.) (60H30)

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Cited In (8)

• The early exercise premium representation for American options on multiply assets
• Valuation of performance-dependent options in a Black-Scholes framework
• On the pricing of perpetual American compound options
• Title not available (Why is that?)
• Title not available (Why is that?)
• Perpetual options on multiple underlyings
• Analytical and Numerical Results for American Style of Perpetual Put Options Through Transformation into Nonlinear Stationary Black-Scholes Equations
• Shortfall risk approximations for American options in the multidimensional Black-Scholes model

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