PRICING PARISIAN-STYLE OPTIONS WITH A LATTICE METHOD-Reference-Cited by-同舟云学术

PRICING PARISIAN-STYLE OPTIONS WITH A LATTICE METHOD

Published:1999-01 Issue:01 Volume:02 Page:1-16
ISSN:0219-0249
Container-title:International Journal of Theoretical and Applied Finance
language:en
Short-container-title:Int. J. Theor. Appl. Finan.

Author:

AVELLANEDA MARCO¹,WU LIXIN²

Affiliation:

1. Department of Mathematics, Courant Institute of Mathematical Sciences, New York University, 251 Mercer St, New York, NY 10012, USA and Morgan Stanley, New York, USA

2. Department of Mathematics, HKUST, Clear Water Bay, Kowloon, Hong Kong, China

Abstract

A Parisian-style barrier option expires if the price of the underlying asset remains above or below some level(s) continuously over a specified period of time (the "window"). A trinomial-lattice scheme is developed for calculating the price and the sensitivities of such options. Monte–Carlo simulation of hedging events using the resulting deltas show errors which are of the same magnitude as for hedging vanilla options, confirming the validity of proposed scheme. We use these results to price callable and convertible bonds with this "window" feature.

Publisher

World Scientific Pub Co Pte Lt

Subject

General Economics, Econometrics and Finance,Finance

Link

https://www.worldscientific.com/doi/pdf/10.1142/S0219024999000029

Reference2 articles.

1. The Pricing of Options and Corporate Liabilities

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