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

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  • Erik Ekstr\"om
  • 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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    File URL: http://arxiv.org/pdf/0903.4833
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 0903.4833.

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    Date of creation: Mar 2009
    Date of revision: Nov 2012
    Publication status: Published in Annals of Applied Probability 2011, Vol. 21, No. 3, 1102-1135
    Handle: RePEc:arx:papers:0903.4833

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    Web page: http://arxiv.org/

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