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August 2003 Perpetual options and Canadization through fluctuation theory
A. E. Kyprianou, M. R. Pistorius
Ann. Appl. Probab. 13(3): 1077-1098 (August 2003). DOI: 10.1214/aoap/1060202835


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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A. E. Kyprianou. M. R. Pistorius. "Perpetual options and Canadization through fluctuation theory." Ann. Appl. Probab. 13 (3) 1077 - 1098, August 2003.


Published: August 2003
First available in Project Euclid: 6 August 2003

zbMATH: 1039.60044
MathSciNet: MR1994045
Digital Object Identifier: 10.1214/aoap/1060202835

Primary: 60G40 , 60G99
Secondary: 60J65

Keywords: Bessel process , Brownian motion , call option , integral option , Laplace transform , option pricing , perpetual option , put option , Russian option , stopping time

Rights: Copyright © 2003 Institute of Mathematical Statistics


Vol.13 • No. 3 • August 2003
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