Optimal exercise policies for call options and their valuation

AbstractIn this paper we discuss optimal exercise policies for a discrete time option model in which the state of the economy follows a Markov chain and stock prices fluctuate according to the distribution of the product of independent positive random variables. We show, under some specific assimptions that there exits a simple optimal exercise policy which dependes only on the stock price and the state of economy. Furthermore, a simple alternative derivation of the Black and Scholes' option pricing formula is presented