A variational approach for pricing options and corporate bonds

Jean Rochet and Jean-Paul Décamps

Economic Theory, 1997, vol. 9, issue 3, 557-569

Abstract: We show that option prices can always be obtained as the values of simple optimization problems. This easy remark has two consequences: sensitivity analysis is simplified (by applying the envelope theorem) and numerical procedures are improved. We give two examples of applications: options on coupon bonds and corporate bonds.

JEL-codes: G13 G33 (search for similar items in EconPapers)
Date: 1997
Note: Received: February 2, 1995; Revised version May 14, 1996
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