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Perpetual Options and Canadization Through Fluctuation Theory

A. E. Kyprianou and M. R. Pistorius
The Annals of Applied Probability
Vol. 13, No. 3 (Aug., 2003), pp. 1077-1098
Stable URL: http://www.jstor.org/stable/1193235
Page Count: 22
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Perpetual Options and Canadization Through Fluctuation Theory
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Abstract

In this article it is shown that one is able to evaluate the price of perpetual calls, puts, Russian and integral options directly as the Laplace transform of a stopping time of an appropriate diffusion using standard fluctuation theory. This approach is offered in contrast to the approach of optimal stopping through free boundary problems. Following ideas of Carr ["Rev. Fin. Studies" 11 (1998) 597-626], we discuss the Canadization of these options as a method of approximation to their finite time counterparts. Fluctuation theory is again used in this case.

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