 Catastrophe equity put options with floating strike pricesThe North American Journal of Economics and Finance, 2020, vol. 54, issue C Abstract: In this study, we extend the results in Cox et al. (2004) by considering floating strike prices, which are affected by accumulated losses. We employ a compound Poisson process to describe catastrophe losses and adopt a mean-reverting square root process to capture the volatility of the underlying stock. In the numerical section, we first compare the differences in the prices of the options with fixed and floating strike prices. In addition, we illustrate the variance of the portfolios consisting of the stock and options with alternative kinds of strike prices by holding the total cost of the options constant. Variance-optimal portfolios are also investigated. Interestingly, numerical results show that the portfolios consisting of the stock and options with floating strike prices have lower variances in all cases, even when we hold the total option costs constant. Keywords: Catastrophe equity put options; Floating strike prices; Catastrophe risk management; Poisson processes (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s106294082030108x DOI: 10.1016/j.najef.2020.101211 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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