Perpetual American Options with Disconnected Exercise Regions in Lévy Models

23 Pages Posted: 29 Jul 2014

See all articles by Svetlana Boyarchenko

Svetlana Boyarchenko

University of Texas at Austin - Department of Economics

Sergei Levendorskii

Calico Science Consulting

Date Written: July 28, 2014

Abstract

For wide classes of payoff functions and Lévy processes, we solve perpetual restricted optimal stopping problems, when one exercise region is exogenously given (barrier like feature), and the other is chosen to optimize the option value, and straddle-like perpetual options, when the optimal exercise region is a union of two disjoint semi-infinite intervals.

Keywords: Lévy processes, perpetual American options with additional barrier, perpetual straddles and strangles, Wiener-Hopf factorization, EPV operators

JEL Classification: C61, G12

Suggested Citation

Boyarchenko, Svetlana I. and Levendorskii, Sergei Z., Perpetual American Options with Disconnected Exercise Regions in Lévy Models (July 28, 2014). Available at SSRN: https://ssrn.com/abstract=2472905 or http://dx.doi.org/10.2139/ssrn.2472905

Svetlana I. Boyarchenko

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Sergei Z. Levendorskii (Contact Author)

Calico Science Consulting ( email )

Austin, TX
United States

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