On perpetual American put valuation and first-passage in a regime-switching model with jumps

In this paper we consider the problem of pricing a perpetual American put option in an exponential regime-switching Lévy model. For the case of the (dense) class of phase-type jumps and finitely many regimes we derive an explicit expression for the value function. The solution of the corresponding first-passage problem under a state-dependent level rests on a path transformation and a new matrix Wiener–Hopf factorization result for this class of processes. Research supported by the Nuffield Foundation, grant NAL/00761/G, and EPSRC grant EP/D039053/1.