A Barrier Option of American Type
نویسندگان
چکیده
We obtain closed–form expressions for the prices and optimal hedging strategies of American put–options in the presence of an “up–and–out” barrier, both with and without constraints on the short–selling of stock. The constrained case leads to a stochastic optimization problem of mixed optimal stopping/singular control type. This is reduced to a variational inequality which is then solved explicitly in two qualitatively seperate cases, according to a certain compatibility condition among the market coefficients and the constraint.
منابع مشابه
Study of the Economic Nature of the Barrier Options and Its Jurisprudential Analysis
The purpose of this study is to investigate the economic and jurisprudential nature of barrier Option. Options are a type of derivative instrument in the financial markets that gives a person the right to buy or sell an asset without obligation. This tool is used along with other types of derivative tools to cover risk and speculation. Two kindes of barrier option are the Knock-In and Knock-out...
متن کاملNumerical algorithm for discrete barrier option pricing in a Black-Scholes model with stationary process
In this article, we propose a numerical algorithm for computing price of discrete single and double barrier option under the emph{Black-Scholes} model. In virtue of some general transformations, the partial differential equations of option pricing in different monitoring dates are converted into simple diffusion equations. The present method is fast compared to alterna...
متن کاملAmerican Option Pricing of Future Contracts in an Effort to Investigate Trading Strategies; Evidence from North Sea Oil Exchange
In this paper, Black Scholes’s pricing model was developed to study American option on future contracts of Brent oil. The practical tests of the model show that market priced option contracts as future contracts less than what model did, which mostly represent option contracts with price rather than without price. Moreover, it suggests call option rather than put option. Using t hypothesis test...
متن کاملBarrier options pricing of fractional version of the Black-Scholes model
In this paper two different methods are presented to approximate the solution of the fractional Black-Scholes equation for valuation of barrier option. Also, the two schemes need less computational work in comparison with the traditional methods. In this work, we propose a new generalization of the two-dimensional differential transform method and decomposition method that will extend the appli...
متن کاملPricing and Hedging of American Knock-In Options
C omplex derivatives have become accepted instruments to tailor risk coverage for risk managers and investors. Barrier-type options have become important instruments, particularly for the valuation of structured products (see Banks [1994]). They are also widely used in currency markets. The holder of a barrier option acquires option coverage on only a subset of the risky outcomes for which a pl...
متن کاملValuation of American partial barrier options
This paper concerns barrier options of American type where the underlying asset price is monitored for barrier hits during a part of the option’s lifetime. Analytic valuation formulas of the American partial barrier options are provided as the finite sum of bivariate normal distribution functions. This approximation method is based on barrier options along with constant early exercise policies....
متن کامل