A perpetual continuous-installment option is an infinite maturity option in which the premium is paid continuously instead of up-front. The holder has the right to terminate payments at any time by either exercising the option or dropping the option contract. Within the standard Black-Scholes framework, the perpetual continuous-installment option pricing problem is discussed and solved as a free boundary problem for a parabolic inhomogeneous ordinary differential equation. The closed-form solution obtained for the special case of a non-dividend paying asset gives the possibility to observe some analytical properties of the initial premium and the optimal boundaries for the perpetual continuous-installment call option. -
Ciurlia, P., Camilla, C. (2009). A note on the pricing of perpetual continuous-installment options. MATHEMATICAL METHODS IN ECONOMICS AND FINANCE, 4, 11-26.
A note on the pricing of perpetual continuous-installment options
CIURLIA, PIERANGELO;
2009-01-01
Abstract
A perpetual continuous-installment option is an infinite maturity option in which the premium is paid continuously instead of up-front. The holder has the right to terminate payments at any time by either exercising the option or dropping the option contract. Within the standard Black-Scholes framework, the perpetual continuous-installment option pricing problem is discussed and solved as a free boundary problem for a parabolic inhomogeneous ordinary differential equation. The closed-form solution obtained for the special case of a non-dividend paying asset gives the possibility to observe some analytical properties of the initial premium and the optimal boundaries for the perpetual continuous-installment call option. -I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
