American options under periodic exercise opportunities

José-Luis Pérez and Kazutoshi Yamazaki

Statistics & Probability Letters, 2018, vol. 135, issue C, 92-101

Abstract: In this paper, we study a version of the perpetual American call/put option where exercise opportunities arrive only periodically. Focusing on the exponential Lévy models with i.i.d. exponentially-distributed exercise intervals, we show the optimality of a barrier strategy that exercises at the first exercise opportunity at which the asset price is above/below a given barrier. Explicit solutions are obtained for the cases where the underlying Lévy process has only one-sided jumps.

Keywords: American options; Optimal stopping; Lévy processes; Periodic exercise opportunities (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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DOI: 10.1016/j.spl.2017.11.020

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