File Name: Exotic Options – Perpetual Options
Location: Modeling Toolkit | Exotic Options | Perpetual Options
Brief Description: Computes the value of an American option that has a perpetual life where the underlying is a dividend-paying asset
Requirements: Modeling Toolkit
Modeling Toolkit Functions Used: MTPerpetualCallOption, MTPerpetualPutOption
The perpetual call and put options are American options with continuous dividends that can be executed at any time but have an infinite life. Clearly, a European option (only exercisable at termination) has a zero value, hence only American options are viable perpetual options. American closed-form approximations with 100-year maturities are also provided in the model to benchmark the results. See Figure 68.1.
Figure 68.1: Perpetual American options