Pricing extendible option under jump-fraction process

PENG Bin; PENG Fei

Issue 3

May 2012

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PENG Bin, PENG Fei. Pricing extendible option under jump-fraction process[J]. Journal of East China Normal University (Natural Sciences), 2012, (3): 30-40.

Citation:

PENG Bin, PENG Fei. Pricing extendible option under jump-fraction process[J]. Journal of East China Normal University (Natural Sciences), 2012, (3): 30-40.

PENG Bin, PENG Fei. Pricing extendible option under jump-fraction process[J]. Journal of East China Normal University (Natural Sciences), 2012, (3): 30-40.

Citation:

PENG Bin, PENG Fei. Pricing extendible option under jump-fraction process[J]. Journal of East China Normal University (Natural Sciences), 2012, (3): 30-40.

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Pricing extendible option under jump-fraction process

PENG Bin¹,
PENG Fei²

1.
School of Business, Renmin University, Beijing}100872, China;
2.
Electrical &Computer Engineering, UBC, Vancouver B. C. V6T 1Z4, Canada

Received Date: 2010-12-01
Rev Recd Date: 2011-03-01
Publish Date: 2012-05-25

Abstract

Abstract

A valuation framework for extendible options is constructed when the underlying asset obeys a fractional process with jump. Under the risk neutral environment, an analytic formula for the call option with one extendible maturity is derived by solving the expected present value of cashflow and conditioning jumps for the underlying asset. Moreover, some special cases of the formula are discussed. These results are generalized to the option with$ M $extendible maturity. Its value will converge in the limit to the value of perpetual extendible option as the number of extendible maturity increases to infinite. Extrapolated technique with two points is presented to yield a simple and efficient computation procedure to calculate the limit. Numerical results are provided to illustrate provided that our pricing expressions are easy to implement.
- jump fraction process,
- extendible option,
- extrapolated technique with two points

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References(1)

References

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