%0 Journal Article
%T Holder-extendible European option: corrections and extensions
%A Pavel V. Shevchenko
%J Quantitative Finance
%D 2010
%I arXiv
%R 10.1017/S1446181115000097
%X Financial contracts with options that allow the holder to extend the contract maturity by paying an additional fixed amount found many applications in finance. Closed-form solutions for the price of these options have appeared in the literature for the case when the contract underlying asset follows a geometric Brownian motion with the constant interest rate, volatility, and non-negative "dividend" yield. In this paper, the option price is derived for the case of the underlying asset that follows a geometric Brownian motion with the time-dependent drift and volatility which is important to use the solutions in real life applications. The formulas are derived for the drift that may include non-negative or negative "dividend" yield. The latter case results in a new solution type that has not been studied in the literature. Several typographical errors in the formula for the holder-extendible put, typically repeated in textbooks and software, are corrected.
%U http://arxiv.org/abs/1010.0090v2