Georgian Mathematical Journal 13 (2006), No. 2, 199--214
Copyright Heldermann Verlag 2006
Semimartingale Local Time and the American Put Option
Petre Babilua
Institute of Mechanics and Mathematics, Faculty of Exact and Natural Sciences, I. Javakhishvili State University, 2 University Street, Tbilisi 0143, Georgia
p_babilua@yahoo.com
A new result is obtained on the vanishing of the local time of a non-negative continuous semimartingale at zero. Based on this result, an early exercise premium representation of a value function of the American put option is obtained in a one-dimensional general diffusion model.
Keywords: American put option, Snell envelope, local time, value process, optimal stopping.
MSC: 60G48, 60G40, 91B24
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