Citation
Ibrahim, Siti Nur Iqmal and Ng, Teck Wee and O'Hara, John G. and Nawawi, A.
(2017)
Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process.
Malaysian Journal of Mathematical Sciences, 11 (1).
pp. 1-8.
ISSN 1823-8343; ESSN: 2289-750X
Abstract
Holder-extendable options are characterized by two maturity dates, which means the option can be exercised at either the expiration date or the extended maturity date. This paper develops a pricing framework for holder-extendable options which deals with the extended version of a stochastic volatility model with an Ornstein-Uhlenbeck (OU) process. The extended model allows correlation between volatility and asset returns. The method uses Fourier inversion techniques that does not require an initial guess of the characteristic functions. A closed-form pricing formula for holder-extendable options is derived for logarithmic asset price dynamics.
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Official URL or Download Paper: http://einspem.upm.edu.my/journal/fullpaper/vol11/...
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Additional Metadata
| Item Type: | Article |
|---|---|
| Divisions: | Faculty of Science Institute for Mathematical Research |
| Publisher: | Institute for Mathematical Research, Universiti Putra Malaysia |
| Keywords: | Holder-extendable option; Ornstein-Uhlenbeck process; Fourier inversion; Stochastic volatility |
| Depositing User: | Nabilah Mustapa |
| Date Deposited: | 27 Apr 2017 09:55 |
| Last Modified: | 27 Apr 2017 09:55 |
| URI: | http://psasir.upm.edu.my/id/eprint/51691 |
| Statistic Details: | View Download Statistic |
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