American Passport options in an exponential L\'evy model

Zakaria Marah

Papers from arXiv.org

Abstract: In this paper we examine the problem of valuing an exotic derivative known as the American passport option where the underlying is driven by a L\'evy process. The passport option is a call option on a trading account. We derive the pricing equation, using the dynamic programming principle, and prove that the option value is a viscosity solution of variational inequality. We also establish the comparison principle, which yields uniqueness and the convexity of the viscosity solution.

Date: 2023-07
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