Reset Put Options: Valuation, Risk Characteristics, and an Application

Stephen F. Gray and Robert E. Whaley
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Stephen F. Gray: Department of Commerce, University of Queensland, Brisbane QLD 4072, gray@commerce.uq.edu.au and Fuqua School of Business, Duke University, Durham NC 27708, USA
Robert E. Whaley: Fuqua School of Business, Duke University, Durham NC 27708, USA, whaley@mail.duke.edu

Australian Journal of Management, 1999, vol. 24, issue 1, 1-20

Abstract: A reset put option is similar to a standard put option except that the exercise price is reset equal to the stock price on the pre†specified reset date if this stock price exceeds the original exercise price. In this paper we derive a valuation for Mula for a reset put option and present a range of comparative statics designed to highlight the differences between a reset put and a standard put We also develop a numerical technique for valuing American†style reset puts. Finally, we apply our valuation results to assess the interest rate premiums embedded in the Geared Equity Investments offered by Macquarte Bank.

Keywords: OPTION VALUATION; RESET OPTIONS; GEARED EQUITY INVESTMENTS (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:24:y:1999:i:1:p:1-20

DOI: 10.1177/031289629902400101

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