 Analytics for geometric average trigger reset optionsTian-Shyr Dai, Yuh-Yuan Fang and Yuh-Dauh Lyuu Applied Economics Letters, 2005, vol. 12, issue 13, 835-840 Abstract: The geometric average trigger reset option resets the strike price based on the geometric average of the underlying asset's prices over a monitoring window. Similar contracts have been traded on exchanges in Asia. This paper derives an analytic formula for pricing this option with multiple monitoring windows. The analytic formula in fact is a corollary of a general formula that holds for a large class of path-dependent options: It prices any option whose value can be written as a linear combination of [image omitted], where X is a multinormal random vector and b is some constant vector. Numerical experiments suggest that the pricing formula approximates the values of arithmetic average trigger reset options accurately. Thus pricing the arithmetic average trigger reset option can benefit from using this formula as the control variate in Monte Carlo simulation. Numerical results also suggest that the geometric average trigger reset option does not have significant delta jump as the standard reset option, and this useful property reduces the hedging risk dramatically. Date: 2005 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:12:y:2005:i:13:p:835-840 Ordering information: This journal article can be ordered from DOI: 10.1080/1350485052000345500 Access Statistics for this article Applied Economics Letters is currently edited by Anita Phillips More articles in Applied Economics Letters from Taylor & Francis Journals |
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