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Risk-Neutral Pricing of Random-Expiry Options Using Trinomial Trees

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  • Sebastien Bossu
  • Michael Grabchak

Abstract

Random-expiry options are nontraditional derivative contracts that may expire early based on a random event. We develop a methodology for pricing these options using a trinomial tree, where the middle path is interpreted as early expiry. We establish that this approach is free of arbitrage, derive its continuous-time limit, and show how it may be implemented numerically in an efficient manner.

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  • Sebastien Bossu & Michael Grabchak, 2025. "Risk-Neutral Pricing of Random-Expiry Options Using Trinomial Trees," Papers 2508.17014, arXiv.org.
    • Handle: RePEc:arx:papers:2508.17014
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    References listed on IDEAS

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