2025/08/23 by Bossu, Sebastien, Grabchak, Michael
#60F05 #60J65 #91G20 #91G60 #Computational Finance (q-fin.CP) #FOS: Economics and business #Pricing of Securities (q-fin.PR)
paper · doi:10.48550/arxiv.2508.17014
Random-expiry options are nontraditional derivative contracts that may expire early based on a random event. We develop a methodology for pricing these options using a trinomial tree, where the middle path is interpreted as early expiry. We establish that this approach is free of arbitrage, derive its continuous-time limit, and show how it may be implemented numerically in an efficient manner.