Perpetual Exchange Options under Jump-Diffusion Dynamics

Gerald H. L. Cheang and Guanghua Lian

Applied Mathematical Finance, 2015, vol. 22, issue 5, 450-462

Abstract: This paper provides a pricing formula for perpetual exchange options, where the dynamics of the underlying assets are driven by jump-diffusion processes. It is an extension of Gerber and Shiu, and also Wong, who have priced perpetual exchange options under the pure-diffusion setting, and that of Gerber and Shiu, who have also considered perpetual options on single assets under jump-diffusion dynamics. It complements the results of Cheang and Chiarella, who derive a probabilistic representation of the American exchange option price under jump-diffusion dynamics.

Date: 2015
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DOI: 10.1080/1350486X.2015.1061443

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