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Valuing American Contingent Claims when Time to Maturity is Uncertain

In: Numerical Methods in Finance

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  • Tony Berrada

Abstract

In this chapter we show how to use the early exercise premium decomposition to value american option with uncertain maturity. We provide two examples where the valuation of such product appears natural, Employee Stock Options and Real Options. We discuss through a numerical example, how the optimal exercise boundary and the Option value are affected by the uncertainty in the maturity, and document significant effects.

Suggested Citation

  • Tony Berrada, 2005. "Valuing American Contingent Claims when Time to Maturity is Uncertain," Springer Books, in: Michèle Breton & Hatem Ben-Ameur (ed.), Numerical Methods in Finance, chapter 0, pages 143-158, Springer.
    • Handle: RePEc:spr:sprchp:978-0-387-25118-9_7
    DOI: 10.1007/0-387-25118-9_7
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