Original Article
Journal of Derivatives & Hedge Funds (2009) 15, 149–157. doi:10.1057/jdhf.2009.5
Exotic options: Boundary analyses
Practical applications Exotic options are very powerful and widely used tools of risk management. However, because of the complexity of those contracts, the basic characteristics of many exotic options are not clearly understood, or are even misunderstood. Although most researches have been focused on developing models for pricing exotic options, it is important to study their unique characteristics and to understand them correctly. In addition, as the exact valuations of exotic options are usually difficult, it is useful to narrow the searching of the prices by placing boundary restrictions.
George L Ye1
Correspondence: George L. Ye, E-mail: george.ye@smu.ca
1is a professor of finance at Jiangri University of Finance and Economics, China, and associate professor of finance at Saint Mary's University, Canada. He has a BSc and an MA in mathematics, an MEng in engineering and a PhD in finance. His research focuses on derivatives pricing, exotic options and risk management.
Received 9 September 2008; Revised 9 September 2008.
Abstract
This paper presents the bounds of exotic options, namely compound options, barrier options and Asian options. There are two purposes of this study: first, option price bounds are used to reveal much insightful information regarding the distinctive characteristics of exotic options, which help to understand those complex derivatives; second, although the bounds of vanilla options have been long recognized, there is no such development for exotic options. This paper aims to fill the gap.
Keywords:
exotic options, option pricing, bounds of option prices, compound options, barrier options, Asian options
MORE ARTICLES LIKE THIS
These links to content published by Palgrave Macmillan are automatically generated.
RESEARCH
Exotic options: Boundary analysesJournal of Derivatives & Hedge Funds Original Article
Violation of lower boundary condition and market efficiency: An investigation into the Indian options marketJournal of Derivatives & Hedge Funds Original Article
Continuous barrier range optionsJournal of Derivatives & Hedge Funds Original Article
Enhancing the Black?Litterman and related approaches: Views and stress-test on risk factorsJournal of Asset Management Original Article
Integrating volatility factors in the analysis of the hedge fund alpha puzzleJournal of Asset Management Original Article
