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Game options

Yuri Kifer ()
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Yuri Kifer: Institute of Mathematics, The Hebrew University, Givat Ram 91904 Jerusalem, Israel Manuscript

Finance and Stochastics, 2000, vol. 4, issue 4, 443-463

Abstract: I introduce and study new derivative securities which I call game options (or Israeli options to put them in line with American, European, Asian, Russian etc. ones). These are contracts which enable both their buyer and seller to stop them at any time and then the buyer can exercise the right to buy (call option) or to sell (put option) a specified security for certain agreed price. If the contract is terminated by the seller he must pay certain penalty to the buyer. A more general case of game contingent claims is considered. The analysis is based on the theory of optimal stopping games (Dynkin's games). Game options can be sold cheaper than usual American options and their introduction could diversify financial markets.

Keywords: American option pricing; optimal stopping game (search for similar items in EconPapers)
JEL-codes: G13 C73 (search for similar items in EconPapers)
Date: 2000-08-11
Note: received: June 1999; final version received: November 1999
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