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

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  • Erik Ekstrom
  • David Hobson

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.

Suggested Citation

  • Erik Ekstrom & David Hobson, 2009. "Recovering a time-homogeneous stock price process from perpetual option prices," Papers 0903.4833, arXiv.org, revised Nov 2012.
    • Handle: RePEc:arx:papers:0903.4833
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    File URL: http://arxiv.org/pdf/0903.4833
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