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Properties of game options

Author

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  • Erik Ekström

Abstract

A game option is an American option with the added feature that not only the option holder, but also the option writer, can exercise the option at any time. We characterize the value of a perpetual game option in terms of excessive functions, and we use the connection between excessive functions and concave functions to explicitly determine the value in some examples. Moreover, a condition on the two contract functions is provided under which the value is convex in the underlying diffusion value in the continuation region and increasing in the diffusion coefficient. Copyright Springer-Verlag 2006

Suggested Citation

  • Erik Ekström, 2006. "Properties of game options," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 63(2), pages 221-238, May.
    • Handle: RePEc:spr:mathme:v:63:y:2006:i:2:p:221-238
    DOI: 10.1007/s00186-005-0027-3
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    References listed on IDEAS

    as
    1. Yuri Kifer, 2000. "Game options," Finance and Stochastics, Springer, vol. 4(4), pages 443-463.
    2. Dayanik, Savas & Karatzas, Ioannis, 2003. "On the optimal stopping problem for one-dimensional diffusions," Stochastic Processes and their Applications, Elsevier, vol. 107(2), pages 173-212, October.
    3. Andreas Kyprianou, 2004. "Some calculations for Israeli options," Finance and Stochastics, Springer, vol. 8(1), pages 73-86, January.
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    Citations

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    Cited by:

    1. Hsuan-Ku Liu, 2013. "The pricing formula for cancellable European options," Papers 1304.5962, arXiv.org, revised Sep 2014.
    2. Yuri Kifer, 2012. "Dynkin Games and Israeli Options," Papers 1209.1791, arXiv.org.
    3. Gunter H Meyer, 2016. "A PDE View of Games Options," Research Paper Series 369, Quantitative Finance Research Centre, University of Technology, Sydney.

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