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Perpetual American put options in a level-dependent volatility model
Published online by Cambridge University Press: 14 July 2016
Abstract
We find the explicit value of perpetual American put options in the constant elasticity of variance model using the concept of smooth fit. We show that the price is increasing in the volatility and convex in the underlying stock price. Moreover, as the model converges to the standard Black and Scholes model, the value of the put is shown to approach the ‘correct’ limit.
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- Short Communications
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- Copyright © Applied Probability Trust 2003
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