Petre Babilua

Semimartingale Local Time and the American Put Option

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.

American put option, Snell envelope, local time, value process, optimal stopping.

MSC 2000: 60G48, 60G40, 91B24