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On perpetual American put valuation and first-passage in a regime-switching model with jumps

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  • Z. Jiang
  • M. R. Pistorius

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.

Suggested Citation

  • Z. Jiang & M. R. Pistorius, 2008. "On perpetual American put valuation and first-passage in a regime-switching model with jumps," Papers 0803.2302, arXiv.org.
    • Handle: RePEc:arx:papers:0803.2302
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    References listed on IDEAS

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    4. Carr, Peter, 1998. "Randomization and the American Put," The Review of Financial Studies, Society for Financial Studies, vol. 11(3), pages 597-626.
    5. Hans Gerber & Elias Shiu, 1998. "On the Time Value of Ruin," North American Actuarial Journal, Taylor & Francis Journals, vol. 2(1), pages 48-72.
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