Author: Yu, Kwok-wai
Title: Pricing American options without expiry date
Degree: M.Phil.
Year: 2004
Subject: Hong Kong Polytechnic University -- Dissertations
Options (Finance) -- Prices -- Mathematical models
Department: Department of Applied Mathematics
Pages: viii, 99 leaves : ill. ; 30 cm
Language: English
Abstract: The history of options trading started prior to 1973. Many different types of options are regularly traded throughout the world. Options on stocks have been traded in Hong Kong since September 1995. Because of the early exercise opportunity, American-type options are more flexible and popular than European-type options. Although many researchers have contributed to deriving pricing formulas for European options, however there are no closed-form formulas for the prices of American options in most cases. The main difficulty is that it is a free boundary value problem. To price an American option, it is important to determine the optimal exercise boundary (and the optimal stopping time). For a perpetual American option, the optimal exercise boundary turns out to be constant through time. The word "perpetual" means that the option has no expiry date. This thesis discusses the martingale approach to pricing perpetual American-type options. A main tool in our approach is the principle of smooth pasting. For simplicity, options in one-stock case are considered first. These options include the perpetual American put option, call option and the perpetual maximum option on one stock. Then we extend our analysis to two-stock case. The perpetual maximum option on two stocks, the perpetual uncapped Margrabe option, the perpetual capped Margrabe options and the perpetual dynamic fund protection are discussed.
Rights: All rights reserved
Access: open access

Files in This Item:
File Description SizeFormat 
b17811338.pdfFor All Users2.63 MBAdobe PDFView/Open

Copyright Undertaking

As a bona fide Library user, I declare that:

  1. I will abide by the rules and legal ordinances governing copyright regarding the use of the Database.
  2. I will use the Database for the purpose of my research or private study only and not for circulation or further reproduction or any other purpose.
  3. I agree to indemnify and hold the University harmless from and against any loss, damage, cost, liability or expenses arising from copyright infringement or unauthorized usage.

By downloading any item(s) listed above, you acknowledge that you have read and understood the copyright undertaking as stated above, and agree to be bound by all of its terms.

Show full item record

Please use this identifier to cite or link to this item: