Closed-Form Solutions for Perpetual American Put Options with Regime Switching

This paper studies an optimal stopping time problem for pricing perpetual American put options in a regime switching model. An explicit optimal stopping rule and the corresponding value function in a closed form are obtained using the ``modified smooth fit' technique. The solution is then compared with the numerical results obtained via a dynamic programming approach and also with a two-point boundary-value differential equation (TPBVDE) method.