Perpetual American options within CTRWs

Miquel Montero ()

Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, issue 15, 3936-3941

Abstract: Continuous-time random walks are a well suited tool for the description of market behaviour at the smallest scale: the tick-to-tick evolution. We will apply this kind of market model to the valuation of perpetual American options: derivatives with no maturity that can be exercised at any time. Our approach leads to option prices that fulfill financial formulas when canonical assumptions on the dynamics governing the process are made, but it is still suitable for more exotic market conditions.

Keywords: Continuous-time random walks; First passage time; Option pricing; Survival probability (search for similar items in EconPapers)
Date: 2008
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Working Paper: Perpetual American options within CTRW's (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:387:y:2008:i:15:p:3936-3941

DOI: 10.1016/j.physa.2008.01.054

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