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arXiv · 0903.4833

Recovering a time-homogeneous stock price process from perpetual option prices

Erik Ekström·David Hobson
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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. 2009-03-27. Recovering a time-homogeneous stock price process from perpetual option prices. https://doi.org/10.1214/10-aap720

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