On perpetual American put valuation and first-passage in a regime-switching model with jumps
Pricing of Securities
2008-12-02 v1 Probability
Abstract
In this paper we consider the problem of pricing a perpetual American put option in an exponential regime-switching L\'{e}vy model. For the case of the (dense) class of phase-type jumps and finitely many regimes we derive an explicit expression for the value function. The solution of the corresponding first passage problem under a state-dependent level rests on a path transformation and a new matrix Wiener-Hopf factorization result for this class of processes.
Keywords
Cite
@article{arxiv.0803.2302,
title = {On perpetual American put valuation and first-passage in a regime-switching model with jumps},
author = {Z. Jiang and M. R. Pistorius},
journal= {arXiv preprint arXiv:0803.2302},
year = {2008}
}
Comments
22 pages, 3 figures. Tp appear in Finance and Stochastics,