American options under periodic exercise opportunities

José Luis Pérez; Kazutoshi Yamazaki

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arXiv · 1708.04163

American options under periodic exercise opportunities

José Luis Pérez·Kazutoshi Yamazaki

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Abstract

In this paper, we study a version of the perpetual American call/put option where exercise opportunities arrive only periodically. Focusing on the exponential L\'evy models with i.i.d. exponentially-distributed exercise intervals, we show the optimality of a barrier strategy that exercises at the first exercise opportunity at which the asset price is above/below a given barrier. Explicit solutions are obtained for the cases the underlying L\'evy process has only one-sided jumps.

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José Luis Pérez, Kazutoshi Yamazaki. 2017-08-14. American options under periodic exercise opportunities. https://arxiv.org/abs/1708.04163

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