We calculate optimal exercise boundaries and rational prices for perpetual American call and put options, and solve entry and exit problems when the underlying uncertainty is modelled as an exponential Ornstein-Uhlenbeck process. The solution is almost as simple as in the case of an exponential...

This paper is an extended version of the paper quot;Practical Guideto Real Options in Discrete Timequot; (http://ssrn.com/abstract=510324), where a general, computationally simple approach to real options in discrete time was suggested. We explicitly formulate conditions of the general theorems...

Sufficient conditions for the application of the Feynman-Kac formula for option pricing for wide classes of affine term structure models in the jump-diffusion case are derived generalizing earlier results for bond pricing in the pure diffusion case

We explicitly solve the pricing problem for perpetual American puts and calls, and provide an efficient semi-explicit pricing procedure for options with finite time horizon. Contrary to the standard approach, which uses the price process as a primitive, we model the price process as the expected...

Continuous time models in the theory of real options give explicit formulas for optimal exercise strategies when options are simple and the price of the underlying asset follows a geometric Brownian motion. This paper suggests a general, computationally simple approach to real options in...

This paper presents a simple discrete time model for valuing real options. A short and simple proof of optimal exercise rules for the standard problems in the real options theory is given in the binomial and trinomial models, and more generally, when the underlying uncertainty is modelled as a...

We derive an explicit formula for time decay, theta, for out-of-the-money European options at expiry, in terms of the density of jumps and payoff $g$. We use this formula to show that in the presence of jumps, the limit of the no-exercise region as time to expiry tends to 0 is typically larger...

We analyze properties of prices of American options under Levy processes, and the related difficulties for design of accurate and efficient numerical methods for pricing of American options. The case of Levy processes with insignificant diffusion component and jump part of infinite activity but...

A general framework for pricing of real options in continuous time for wide classes of payoff streams that are monotone functions of a Levy process is provided. Exercise rules are formulated in terms of statistics of record-setting low payoffs and can be viewed as an extension of Bernanke's bad...

We derive explicit formulas for time decay, for the European call and put options at expiry, and use them to calculate analytical approximations to the price of the American put and early exercise boundary near expiry. We show that for many families of non-Gaussian processes used in empirical...