Strict Local Martingale Deflators and Valuing American Call-Type Options

17 Pages Posted: 28 May 2016  

Erhan Bayraktar

University of Michigan at Ann Arbor - Department of Mathematics

Constantinos Kardaras

London School of Economics & Political Science (LSE)

Hao Xing

London School of Economics & Political Science (LSE)

Date Written: July 2, 2010

Abstract

We solve the problem of valuing and optimal exercise of American call-type options in markets which do not necessarily admit an equivalent local martingale measure. This resolves an open question proposed by Karatzas and Fernholz (Handbook of Numerical Analysis, vol. 15, pp. 89–167, Elsevier, Amsterdam, 2009).

Keywords: Strict local martingales, Deflators, American call options

JEL Classification: G13, C60

Suggested Citation

Bayraktar, Erhan and Kardaras, Constantinos and Xing, Hao, Strict Local Martingale Deflators and Valuing American Call-Type Options (July 2, 2010). Finance Stochastics, Vol. 16, No. 2, 2012. Available at SSRN: https://ssrn.com/abstract=2785667

Erhan Bayraktar (Contact Author)

University of Michigan at Ann Arbor - Department of Mathematics ( email )

2074 East Hall
530 Church Street
Ann Arbor, MI 48109-1043
United States

Constantinos Kardaras

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Hao Xing

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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