On the Use of Numeraires in Option pricing

Simon Benninga (benninga@post.tau.ac.il), Tomas Bjork and Zvi Wiener
Additional contact information
Simon Benninga: Faculty of Management, Tel Aviv University, Postal: Israel

No 484, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: In this paper we discuss the significant computational simplification that occurs when option pricing is approached through the change of numeraire technique. The original impetus was a recently published paper (Hoang, Powell, Shi 1999) on endowment options; in the present paper we extend these results to the case of stochastic interest rates. We also discuss four additional option pricing problems within the framework of a change of numeraire:

1. Pricing savings plans which incorporate a choice of linkage.

2. Pricing convertible bonds.

3. Pricing employee stock ownership plans

4. Pricing options where the strike price is in a currency different from the stock price.

Keywords: Numeraire; option; convertible bond (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2002-01-03
New Economics Papers: this item is included in nep-ifn
Note: submitted
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published in Journal of Derivatives, 2002, pages 43-58.

Downloads: (external link)
http://swopec.hhs.se/hastef/papers/hastef0484.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0484

Access Statistics for this paper

More papers in SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Helena Lundin (helena.lundin@hhs.se).