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June 2011 Recovering a time-homogeneous stock price process from perpetual option prices
Erik Ekström, David Hobson
Ann. Appl. Probab. 21(3): 1102-1135 (June 2011). DOI: 10.1214/10-AAP720

Abstract

It is well known how to determine the price of perpetual American options if the underlying stock price is a time-homogeneous diffusion. In the present paper we consider the inverse problem, that is, given prices of perpetual American options for different strikes, we show how to construct a time-homogeneous stock price model which reproduces the given option prices.

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Erik Ekström. David Hobson. "Recovering a time-homogeneous stock price process from perpetual option prices." Ann. Appl. Probab. 21 (3) 1102 - 1135, June 2011. https://doi.org/10.1214/10-AAP720

Information

Published: June 2011
First available in Project Euclid: 2 June 2011

zbMATH: 1228.91068
MathSciNet: MR2830614
Digital Object Identifier: 10.1214/10-AAP720

Subjects:
Primary: 60J60 , 91G20
Secondary: 60G40

Keywords: American options , exact calibration of volatility , generalized diffusions , Inverse problems

Rights: Copyright © 2011 Institute of Mathematical Statistics

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Vol.21 • No. 3 • June 2011
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