The Library
Perpetual American options in incomplete markets : the infinitely divisible case
Tools
Henderson, Vicky and Hobson, David (David G.) (2008) Perpetual American options in incomplete markets : the infinitely divisible case. Quantitive Finance, Vol.8 (No.5). pp. 461-469. doi:10.1080/14697680701400986 ISSN 1469-7688.
Research output not available from this repository.
Request-a-Copy directly from author or use local Library Get it For Me service.
Official URL: http://dx.doi.org/10.1080/14697680701400986
Abstract
We consider the exercise of a number of American options in an incomplete market. In this paper we are interested in the case where the options are infinitely divisible. We make the simplifying assumptions that the options have infinite maturity, and the holder has exponential utility. Our contribution is to solve this problem explicitly and we show that, except at the initial time when it may be advantageous to exercise a positive fraction of his holdings, it is never optimal for the holder to exercise a tranche of options. Instead, the process of option exercises is continuous; however, it is singular with respect to calendar time. Exercise takes place when the stock price reaches a convex boundary which we identify.
Item Type: | Journal Article | ||||
---|---|---|---|---|---|
Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance Q Science > QA Mathematics |
||||
Divisions: | Faculty of Science, Engineering and Medicine > Science > Statistics | ||||
Library of Congress Subject Headings (LCSH): | Options (Finance), Markets, Equilibrium (Economics), Distribution (Probability theory) | ||||
Journal or Publication Title: | Quantitive Finance | ||||
Publisher: | IOP Publishing | ||||
ISSN: | 1469-7688 | ||||
Official Date: | 2008 | ||||
Dates: |
|
||||
Volume: | Vol.8 | ||||
Number: | No.5 | ||||
Number of Pages: | 9 | ||||
Page Range: | pp. 461-469 | ||||
DOI: | 10.1080/14697680701400986 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Funder: | National Science Foundation (U.S.) (NSF), Engineering and Physical Sciences Research Council (EPSRC) | ||||
Grant number: | DMI 0447990 (NSF) |
Data sourced from Thomson Reuters' Web of Knowledge
Request changes or add full text files to a record
Repository staff actions (login required)
View Item |