Valuation and parities for exchange options

Constantinos Kardaras

Papers from arXiv.org

Abstract: Valuation and parity formulas for both European-style and American-style exchange options are presented in a general financial model allowing for jumps, possibility of default and "bubbles" in asset prices. The formulas are given via expectations of auxiliary probabilities using the change-of-numeraire technique. Extensive discussion is provided regarding the way that folklore results such as Merton's no-early-exercise theorem and traditional parity relations have to be altered in this more versatile framework.

Date: 2012-06, Revised 2014-11
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