 The pricing of dual-expiry exoticsPeter Buchen Quantitative Finance, 2004, vol. 4, issue 1, 101-108 Abstract: This paper develops a new technique for pricing a class of exotic options that are characterized by two expiry dates. Examples of such exotics include compound options, chooser options, extendable options, shout options, partial barrier options and others. The method, based on the partial differential equation approach to option pricing, however requires no formal solution of such equations. Instead, the method exploits the observation that dual expiry options have payoffs that can be perfectly replicated by a particular set of first and second order binary options. Hence, in order to avoid arbitrage, the exotic option prices are obtained by static replication with respect to this family of binaries. The representation of prices in terms of these binaries is also quite general and does not depend on any particular underlying asset price dynamics. Closed form expressions agreeing with published results are given for the case of log-normal asset price dynamics and standard Black-Scholes assumptions. Date: 2004 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:4:y:2004:i:1:p:101-108 Ordering information: This journal article can be ordered from DOI: 10.1088/1469-7688/4/1/009 Access Statistics for this article Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral More articles in Quantitative Finance from Taylor & Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.