A CLASS OF OPTIONS WITH STOCHASTIC LIVES AND AN EXTENSION OF THE BLACK-SCHOLES FORMULA

Authors
JENNERGREN LP NASLUND B
Citation
Lp. Jennergren et B. Naslund, A CLASS OF OPTIONS WITH STOCHASTIC LIVES AND AN EXTENSION OF THE BLACK-SCHOLES FORMULA, European journal of operational research, 91(2), 1996, pp. 229-234
Citations number
9
Categorie Soggetti
Management,"Operatione Research & Management Science
Journal title
European journal of operational research → ACNP
ISSN journal
03772217
Volume
91
Issue
2
Year of publication
1996
Pages
229 - 234
Database
ISI
SICI code
0377-2217(1996)91:2<229:ACOOWS>2.0.ZU;2-K
Abstract
Certain options have a fixed date of maturity but may be cancelled pre maturely. This can happen for a stock option in case of a merger or fo r an executive stock option in case the executive leaves his/her prese nt job. The differential equation is given which governs the value of an option with a stochastic life. Solutions can be obtained through in tegration in certain cases. The main result is an extension of the Bla ck-Scholes formula to options where the time to expiration is stochast ic.