VALUATION OF COMPOUND OPTION WHEN THE UNDERLYING ASSET IS NON-TRADABLE

Yu-Hong Liu ()
Additional contact information
Yu-Hong Liu: Graduate Institute of Finance and Banking, National Cheng Kung University, Tainan, Taiwan

International Journal of Theoretical and Applied Finance (IJTAF), 2010, vol. 13, issue 03, 441-458

Abstract: After Geske (1979), compound options — options on options — have been employed in many fields in which real options are applied. The formula for a compound option is convenient to use in real project investment, but it has one drawback — the assets that underlie the compound options are usually non-tradable. This article addresses this issue and proposes two new compound option pricing formulae to overcome this drawback.

Keywords: Compound option; non-tradable asset; incomplete market; utility indifference pricing (search for similar items in EconPapers)
Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S021902491000584X
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:13:y:2010:i:03:n:s021902491000584x

Ordering information: This journal article can be ordered from

DOI: 10.1142/S021902491000584X

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().