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

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

2008-03-15

arxiv.org/abs/0803.2302v1

Economy

Quantitative Finance

Pricing of Securities

22 pages, 3 figures. Tp appear in Finance and Stochastics,

Scientific paper

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.

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