Pattern derivatives

Casey S. Schroeder and Massimo Di Pierro

International Journal of Financial Markets and Derivatives, 2011, vol. 2, issue 4, 249-257

Abstract: In this paper, we propose a new type of derivative called a pattern derivative. In the simple case of an asset that moves up u or down d in value, a pattern is a sequence of {u, d} movements that may occur before expiration. We provide general pricing formulas that rely on a brute force approach as well as efficient valuation algorithms based on recursive formulas for the probability of patterns to occur. We generalise our results to exclusive, inclusive, and multi-pattern options. Finally, we discuss the possible benefits of this type of options.

Keywords: patterns; pattern derivatives; options pricing. (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.inderscience.com/link.php?id=45608 (text/html)
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:ids:ijfmkd:v:2:y:2011:i:4:p:249-257

Access Statistics for this article

More articles in International Journal of Financial Markets and Derivatives from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().