Recovering a time-homogeneous stock price process from perpetual option prices
arXiv:0903.4833 · doi:10.1214/10-AAP720
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.
arXiv commentPublished in at http://dx.doi.org/10.1214/10-AAP720 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)