Abstract
We solve the problem of valuing and optimal exercise of American call-type options in markets which do not necessarily admit an equivalent local martingale measure. This resolves an open question proposed by Karatzas and Fernholz (Handbook of Numerical Analysis, vol. 15, pp. 89–167, Elsevier, Amsterdam, 2009).
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E. Bayraktar is supported in part by the National Science Foundation under an applied mathematics research grant and a Career grant, DMS-0906257 and DMS-0955463, respectively, and in part by the Susan M. Smith Professorship. C. Kardaras is supported in part by the National Science Foundation under Grant No. DMS-0908461.
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Bayraktar, E., Kardaras, C. & Xing, H. Strict local martingale deflators and valuing American call-type options. Finance Stoch 16, 275–291 (2012). https://doi.org/10.1007/s00780-011-0155-y
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DOI: https://doi.org/10.1007/s00780-011-0155-y