The Impact of Changes in Time to Maturity on the Risk of Geometric Options

Ewa Dziawgo ()
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Ewa Dziawgo: Kazimierz Wielki University

A chapter in Eurasian Economic Perspectives, 2019, pp 25-35 from Springer

Abstract: Abstract Asian geometric options are path-dependent exotic options whose pay-off function is based on the geometric average price of the underlying instrument in the past (in a fixed period, leading up to the expiration date). This paper presents the issues connected with the geometric option: the instrument’s structure, types options, pay-off function, the pricing model, the effect of time to maturity and the price of underlying instrument on the option price and the value coefficients: delta, gamma, vega, theta, rho. These coefficients are the sensitivity measures. The sensitivity measures are important in managing the options risk. They indicate the influence the change in the option price for a change in the value of a risk factor. The objective of this paper is to present the effect of time to maturity on the price and the values of the risk measures (coefficients: delta, gamma, vega, theta, rho). The empirical illustrations included in the paper are presented based on a simulation of valuations of currency geometric call options (on the EUR/USD).

Keywords: Financial instruments; Risk management; Measures of risk (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:eurchp:978-3-030-18565-7_3

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DOI: 10.1007/978-3-030-18565-7_3

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