Recovering a time-homogeneous stock price process from perpetual option prices

Erik Ekstr\"om and David Hobson

Papers from arXiv.org

Abstract: It is well known how to determine the price of perpetual American options if the underlying stock price is a time-homogeneous diffusion. In the present paper we consider the inverse problem, that is, given prices of perpetual American options for different strikes, we show how to construct a time-homogeneous stock price model which reproduces the given option prices.

Date: 2009-03, Revised 2012-11
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Published in Annals of Applied Probability 2011, Vol. 21, No. 3, 1102-1135

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0903.4833

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