Publication
Title
Valuation of exotic options under shortselling constraints
Author
Abstract
Options with discontinuous payoffs are generally traded above their theoretical BlackScholes prices because of the hedging difficulties created by their large delta and gamma values. A theoretical method for pricing these options is to constrain the hedging portfolio and incorporate this constraint into the pricing by computing the smallest initial capital which permits super-replication of the option. We develop this idea for exotic options, in which case the pricing problem becomes one of stochastic control. Our motivating example is a call which knocks out in the money, and explicit formulas for this and other instruments are provided.
Language
English
Source (journal)
Finance and stochastics. - Berlin
Publication
Berlin : 2002
ISSN
0949-2984
Volume/pages
6:2(2002), p. 143-172
ISI
000178721200001
Full text (Publisher's DOI)
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Publication type
Subject
External links
Web of Science
Record
Identification
Creation 03.03.2015
Last edited 17.09.2017