The Perpetual American Put Option for Jump-Diffusions
Journal article, Peer reviewed
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Original versionEnergy Systems 2010:493-507 10.1007/978-3-642-12067-1_28
We solve a specific optimal stopping problem with an infinite time horizon, when the state variable follows a jump-diffusion. The novelty of the paper is related to the inclusion of a jump component in this stochastic process. Under certain conditions, our solution can be interpreted as the price of an American perpetual put option. We characterize the continuation region when the underlying asset follows this type of stochastic process. Our basic solution is exact only when jump sizes cannot be negative. A methodology to deal with negative jump sizes is also demonstrated. Energy, Natural Resources and Environmental Economics Energy, Natural Resources and Environmental Economics Look
-This is the author's version of the article"The Perpetual American Put Option for Jump-Diffusions" Energy Systems pp 493-507.