Stock options as barrier contingent claims

Jan Ericsson and Joel Reneby

Applied Mathematical Finance, 2003, vol. 10, issue 2, pages 121-147

Abstract: A comprehensive model is suggested that values securities as options and consequently ordinary stock options as compound options. Extending the basic Black-Scholes model, it can incorporate common contractual features and stylized facts. More specifically, a closed form solution is derived for the price of a call option on a down-and-out call. It is then shown how the result obtained can be generalized in order to price options on complex corporate securities, allowing among other things for corporate taxation, costly financial distress and deviations from the absolute priority rule. The characteristics of the model are illustrated with numerical examples.

Keywords: Model; Stock Options; Corporate Securities (search for similar items in EconPapers)
Date: 2003
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Working Paper: Stock Options as Barrier Contingent Claims (2002)
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