Perpetual callable American volatility options in a mean-reverting volatility model

TL;DR

This paper develops a valuation framework for perpetual callable American volatility put options using a mean-reverting 3/2 volatility model, providing a pricing formula and analyzing their value under specific conditions.

Contribution

It introduces a novel pricing formula for perpetual American volatility options within a mean-reverting 3/2 volatility framework, addressing a gap in existing models.

Findings

Derived a pricing formula for perpetual American knock-out put options.

Analyzed the valuation of callable American volatility puts under mean-reversion.

Provided insights into the conditions affecting option value.

Abstract

This paper investigates problems associated with the valuation of callable American volatility put options. Our approach involves modeling volatility dynamics as a mean-reverting 3/2 volatility process. We first propose a pricing formula for the perpetual American knock-out put. Under the given conditions, the value of perpetual callable American volatility put options is discussed.