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Options with stochastic lives

Author

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  • Jennergren, L. Peter
  • Näslund, Bertil

Abstract

This paper shows how to value options with stochastic lives, i.e. options which may be cancelled but where the underlying stocks retain their value. The executive stock option, which is cancelled if the executive takes a job in another firm, is a typical example. The paper also contains a comparison with a somewhat similar case in a paper by Merlon [Journal of Financial Economics (1976), pp. 125-144], where the underlying stock, rather than merely the option, may suddenly become worthless.

Suggested Citation

  • Jennergren, L. Peter & Näslund, Bertil, 1993. "Options with stochastic lives," Scandinavian Journal of Management, Elsevier, vol. 9(Supplemen), pages 67-72.
    • Handle: RePEc:eee:scaman:v:9:y:1993:i:supplement1:p:s67-s72
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