Pricing American perpetual put option using ordinary differential equation approach

Abstract

This Thesis aims to re-derive formula to pricing the American Perpetual put option under the Black-Scholes framework. We rst derive the formula using the ordinary di erential equation approach. After archived the close form,we show in detail how to apply the formula to price an America perpetual put option written on a Vietnamese stock, more speci cally we used close price of Vietnam Dairy Products joint Stock Company (Vinamilk-VNM).Finally, to check the validity of the formula, we use binomial method to re-evaluate the price of an American perpetual put Option written on VNM stock to check the error between two results. All the calculations and graphs sketching have been done under Rstudio environment. This study can give an advantage knowledge for Vietnamese investors on trading option which is being traded in Vietnamese stock market.