Consider an American butterfly option with the following payoff function.

Price the perpetual American butterfly option with \(r>0\) in the following cases.

a) \(\widehat{K} \leqslant L^{*} \leqslant S_{0}\).

b) \(\widehat{K} \leqslant S_{0} \leqslant L^{*}\).

c) \(0 \leqslant S_{0} \leqslant \widehat{K}\).

Transcribed Image Text:

BRO 60 50 40 30 20 10 Payoff function. 200 K Figure 15.14: Butterfly payoff function. 0 2K-K