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Quantitative Finance by Matt Davison

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Chapter 29

Pricing the Perpetual American Put and Call

29.1 CHAPTER SUMMARY

This chapter provides some special case solutions for the so-called Perpetual options—options that never expire. Analytic results are available, useful for checking finite life options pricing codes. And a great deal of insight about the American problem is available from considering these perpetual limits. Section 29.2 provides a bridge from the notation of Chapter 28 to this chapter and an introduction to perpetual options in general. It then presents results for perpetual American puts (and calls, although those results are trivial) on stocks that pay no dividends. Section 29.3 adds continuously paid dividends to the mix, and supplies a price for perpetual American ...

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