Generalised Geske--Johnson Interpolation of Option Prices

This paper describes four separate option types as special cases of Bermudans with general inter-exercise and time to final maturity. This produces a surface with European, finite American, infinite Bermudan and infinite American options as special cases. This allows <link rid="b13">Geske-Johnson (1984)</link> two-point pricing to be extended to consider time-to-maturity as well as time-between-exercise opportunities. Due to their position on this 'map', infinite Bermudans are christened Arctic options and their pricing solution is presented. Numerical comparisons to benchmark methods are made for call prices under GBM although the results here hold for other processes and for both puts and calls when symmetry arguments are invoked. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.