Options on a traded account: Vacation calls, vacation puts and passport options

Steven E. Shreve and Jan Vecer
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Steven E. Shreve: Department of Mathematical Sciences, Carnegie Mellon University, Pittsburgh, PA 15213-3890, USA Manuscript

Finance and Stochastics, 2000, vol. 4, issue 3, 255-274

Abstract: In this article we study options on a traded account. In terms of the actions available to the buyer, the options we study are more general than a class of options known as {\em passport options}; in terms of the model of the underlying asset they are more restrictive. Using probabilistic techniques, we find the value of these options, the optimal strategy of the buyer, and the hedging strategy the seller should use in response to a (not necessarily optimal) strategy by the buyer.

Keywords: Passport options; Vacation options; Stochastic control; Hamilton-Jacobi-Bellman equation; Comparison theorem; Put-call parity; Hedging (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2000-05-09
Note: received: January 1999; final version received: August 1999
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Citations: View citations in EconPapers (16)

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