Discounted perpetual game put options

Tsvetelin S. Zaevski

Chaos, Solitons & Fractals, 2020, vol. 137, issue C

Abstract: The aim of this study is to explore the behavior of perpetual game put options, also known as cancellable puts. Their main characteristic is the opportunity of the buyer and the seller to exercise prematurely. If the seller decides to terminate the option, he obliges to pay a penalty amount above the normal option fee. We include also a discount factor that provides an advantage for earlier option exercising. We obtain the optimal moments for both participants to end the option promptly. This allows us to turn the option pricing problem to a first exit problem. We base our examination on financial instruments with random maturities. These instruments permit one of the partakers to maximize his expected future profit.

Keywords: Game options; Cancellable puts; American style instruments; Optimal regions (search for similar items in EconPapers)
JEL-codes: C57 C61 C73 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:137:y:2020:i:c:s0960077920302587

DOI: 10.1016/j.chaos.2020.109858

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