Abstract
We give an explicit solution to the perpetual American capped power put option pricing problem in the BlackScholes-Merton Model. The approach is mainly based on free-boundary formulation and verification. For completeness we also give an explicit solution to the perpetual American standard power (_ 1) option pricing problem.
Highlights
A standard American power put option is a financial contract that allows the holder to sell an asset for a prescribed amount at any time
For the perpetual American power (≥ 1) put option, for completeness, we give the value of this option and the optimal stopping time
For the perpetual American capped power put option, we give the value of this option and the optimal stopping time
Summary
A standard American power put option is a financial contract that allows the holder to sell an asset for a prescribed amount at any time. The case of power being one corresponds to the usual American put option [1]. For the European power put option, the value of this option is given [2,3,4]. For the perpetual American power (≥ 1) put option, for completeness, we give the value of this option and the optimal stopping time.
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