ebooks logo journals logo reference works logo abstract databases logo
bullet  SIGN IN Register | Why Register? | Got a Voucher? alerts   marked lists   shopping cart 

informaworld

HOME   |   SEARCH   |   BROWSE
    Issues List       Latest Issue       Forthcoming Articles       Volume 4 Issue 1       Subscribe       Article       References       Related articles      
<< firstfirst   < prevprev   Table of contentstoc   next >next   last >>last
Publisher Logo Publication Cover
Search within this journal

The pricing of dual-expiry exotics 

Author: Peter W. Buchen a
Affiliation:   a School of Mathematics and Statistics, University of Sydney, NSW, Australia
DOI: 10.1088/1469-7688/4/1/009
Publication Frequency: 8 issues per year
Published in: journal Quantitative Finance, Volume 4, Issue 1 February 2004 , pages 101 - 108
Formats available: PDF (English)
Article Requests: Order Reprints : Request Permissions
View Article: View Article (PDF) View Article (PDF)


Abstract

This paper develops a new technique for pricing a class of exotic options that are characterized by two expiry dates. Examples of such exotics include compound options, chooser options, extendable options, shout options, partial barrier options and others. The method, based on the partial differential equation approach to option pricing, however requires no formal solution of such equations. Instead, the method exploits the observation that dual expiry options have payoffs that can be perfectly replicated by a particular set of first and second order binary options. Hence, in order to avoid arbitrage, the exotic option prices are obtained by static replication with respect to this family of binaries. The representation of prices in terms of these binaries is also quite general and does not depend on any particular underlying asset price dynamics. Closed form expressions agreeing with published results are given for the case of log-normal asset price dynamics and standard Black-Scholes assumptions.
view references (14)
Bookmark with:
  • CiteULike
  • Del.icio.us
  • BibSonomy
  • Connotea
  • More bookmarks
Privacy Policy | Terms & Conditions | Accessibility | RSS
FAQs in: English . Français . Español . 中文(简体和繁體)
© 2009 Informa plc