Valuing Finite-Lived Options as Perpetual

We show how the value of a finite-lived option can be interpreted as the limit of a sequence of perpetual option values subject to default risk. This interpretation yields new closed form approximations for European and American option values in the Black Scholes model. Numerical results indicate that the approximation is both accurate and computationally efficient.

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Year of publication:	1996-07-11
Authors:	Carr, Peter
Institutions:	EconWPA
Subject:	American options \| method of lines

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Extent:	application/pdf application/postscript
Series:	Finance.
Type of publication:	Book / Working Paper
Notes:	Type of Document - Postscript - originally LaTeX; prepared on Unix - Tex; to print on Postscript; pages: 34; figures: included. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it. 34 pages
Classification:	G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005134853