Multiple rescindable options and their pricing
MetadataShow full item record
We suggest a modification of an American option such that the option holder can exercise the option early before the expiration and can revert later this decision to exercise; it can be repeated a number of times. This feature gives additional flexibility and risk protection for the option holder. A classification of these options and pricing rules are given. We found that the price of some call options with this feature is the same as for the European call. This means that the additional flexibility costs nothing, similarly to the situation with American and European call options. For the market model with zero interest rate, the price of put options with this feature is also the same as for the standard European put options. Therefore, these options can be more competitive than the standard American options
Showing items related by title, author, creator and subject.
Zhang, K.; Teo, Kok Lay (2015)This paper is devoted to develop a robust penalty-based method of reconstructing smooth local volatility surface from the observed American option prices. This reconstruction problem is posed as an inverse problem: given ...
Dokuchaev, Nikolai (2008)We study a modification of an American option such that the option holder can exercise the option early before the expiration, and he or she can revert later this decision to exercise a number of times. This feature gives ...
Mostafa, Fahed. (2011)Market risk refers to the potential loss that can be incurred as a result of movements inmarket factors. Capturing and measuring these factors are crucial in understanding andevaluating the risk exposure associated with ...