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Properties of game options

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Abstract

A game option is an American option with the added feature that not only the option holder, but also the option writer, can exercise the option at any time. We characterize the value of a perpetual game option in terms of excessive functions, and we use the connection between excessive functions and concave functions to explicitly determine the value in some examples. Moreover, a condition on the two contract functions is provided under which the value is convex in the underlying diffusion value in the continuation region and increasing in the diffusion coefficient.

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Author notes

  1. Erik Ekström

    Present address: School of Mathematics, University of Manchester, Sackville Street, Manchester, M601QD, United Kingdom

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    1. Erik Ekström
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    Correspondence to Erik Ekström.

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    Mathematics Subject Classification (2000) Primary 91A15, Secondary 60G40, 91B28

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    Ekström, E. Properties of game options. Math Meth Oper Res 63, 221–238 (2006). https://doi.org/10.1007/s00186-005-0027-3

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    • DOI: https://doi.org/10.1007/s00186-005-0027-3

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