Mathematical Finance and Probability Seminars (Since covid these events are taking place online.)

In this talk, we will examine the valuation of a generalized American-style option known as a game-type call option in an infinite time horizon setting. The specifications of this contract allow the writer to terminate the call option at any point in time for a fixed penalty amount paid directly to the holder. Valuation of a perpetual Game-style put option was addressed by Kyprianou (2004)in a Black-Scholes setting on a non-dividend paying asset. Here, we undertake a similar analysis for the perpetual call option in the presence of dividends and find qualitatively different explicit representations for the value function depending on the relationship between the interest rate and dividend yield. Specifically, we find that the value function is not convex when r>d. Numerical results show the impact this phenomenon has upon the vega of the option.

Speaker: Thomas Emmerling, University of Michigan

Slides: (TBA)