A compound option is simply an option on an option. In this short paper, by using a martingale technique, we obtain an analytical formula for pricing compound European call options. Numerical results are given to expl...A compound option is simply an option on an option. In this short paper, by using a martingale technique, we obtain an analytical formula for pricing compound European call options. Numerical results are given to explain some economic phenomenon.展开更多
Exotic options, or “path-dependent” options are options whose payoff depends on the behavior of the price of the underlying between 0 and the maturity, rather than merely on the final price of the underlying, such a...Exotic options, or “path-dependent” options are options whose payoff depends on the behavior of the price of the underlying between 0 and the maturity, rather than merely on the final price of the underlying, such as compound options, reset options and so on. In this paper, a generalization of the Geske formula for compound call options is obtained in the case of time-dependent volatility and time-dependent interest rate by applying martingale methods and the change of numeraire or the change of probability measure. An analytic formula for the reset call options with predetermined dates is also derived in the case by using the same approach. In contrast to partial differential equation (PDE) approach, our approach is simpler.展开更多
基金The research is supported by the research grant RG081/04-05S/JXQ/FST from University of Macauthe grant 050/2005/A from FDCT
文摘A compound option is simply an option on an option. In this short paper, by using a martingale technique, we obtain an analytical formula for pricing compound European call options. Numerical results are given to explain some economic phenomenon.
基金Project (No. Y604137) supported by the Natural Science Foundationof Zhejiang Province, China
文摘Exotic options, or “path-dependent” options are options whose payoff depends on the behavior of the price of the underlying between 0 and the maturity, rather than merely on the final price of the underlying, such as compound options, reset options and so on. In this paper, a generalization of the Geske formula for compound call options is obtained in the case of time-dependent volatility and time-dependent interest rate by applying martingale methods and the change of numeraire or the change of probability measure. An analytic formula for the reset call options with predetermined dates is also derived in the case by using the same approach. In contrast to partial differential equation (PDE) approach, our approach is simpler.
