Various passport options and their valuation

Hyungsok Ahn, Antony Penaud and Paul Wilmott

Applied Mathematical Finance, 1999, vol. 6, issue 4, 275-292

Abstract: The passport option is a call option on the balance of a trading account. The option holder retains the gain from trading, while the writer is liable for the loss. Multi-asset passport options and passport options with discrete constraints are studied. For the first ones the pricing equations are Hamilton-Jacobi-Bellman equations. For those with discrete constraints, a linear complementary problem must be solved in order to price the option. The gain by selling passport options to utility maximizing investors and to investors who guess the market a certain percentage of the time is also examined.

Keywords: Passport Option Trading Account Hamilton-JACOBI-BELLMAN Equation Option Pricing (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1080/13504869950079293

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