A pricing formula for delayed claims: Appreciating the past to value the future

We consider the valuation of contingent claims with delayed dynamics in a Black&Scholes complete market model. We find a pricing formula that can be decomposed into terms reflecting the market values of the past and the present, showing how the valuation of future cashflows cannot abstract away from the contribution of the past. As a practical application, we provide an explicit expression for the market value of human capital in a setting with wage rigidity. The formula we derive has successful...