European Compound Options Written on Perpetual American Options

Barone, Gaia (2013) European Compound Options Written on Perpetual American Options. The Journal of Derivatives, 20 (3). pp. 61-74. ISSN 2168-8524

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Abstract

It may seem counterintuitive, but valuing “perpetual” options, with infinite maturity, can be easier than pricing those that expire at a fixed date. At least Samuelson found it so in 1965. In this article, Barone extends the valuation models for perpetual options to cover American calls and puts on dividend-paying stocks, and European options written on these infinite maturity contracts. Formulas for the Greek letter risks are presented, as well as an analysis of how put-call parity works for them. Along the way, additional results are developed for first-touch digital options, both perpetual and finite maturity.

Item Type:	Article
Subjects:	H Social Sciences > HG Finance H Social Sciences > HG Finance > Investment
Divisions:	School of Business > Staff Research and Publications
Depositing User:	Caoimhe Ní Mhaicín
Date Deposited:	13 Sep 2018 10:40
Last Modified:	13 Sep 2018 10:40
URI:	https://norma.ncirl.ie/id/eprint/3111

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