Valuing American Contingent Claims when Time to Maturity is Uncertain

Tony Berrada

Chapter Chapter 7 in Numerical Methods in Finance, 2005, pp 143-158 from Springer

Abstract: Abstract In this chapter we show how to use the early exercise premium decomposition to value american option with uncertain maturity. We provide two examples where the valuation of such product appears natural, Employee Stock Options and Real Options. We discuss through a numerical example, how the optimal exercise boundary and the Option value are affected by the uncertainty in the maturity, and document significant effects.

Keywords: Real Option; Investment Opportunity; American Option; Contingent Claim; Triangular Distribution (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-0-387-25118-9_7

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DOI: 10.1007/0-387-25118-9_7

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