EconStor >
Frankfurt School of Finance and Management, Frankfurt a. M. >
CPQF Working Paper Series, Frankfurt School of Finance and Management >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/40174
  
Title:Unifying exotic option closed formulas PDF Logo
Authors:Esquível, Manuel L.
Veiga, Carlos
Wystup, Uwe
Issue Date:2010
Series/Report no.:CPQF Working Paper Series 23
Abstract:This paper aims to unify exotic option closed formulas by generalizing a large class of existing formulas and by setting a framework that allows for further generalizations. The formula presented covers options from the plain vanilla to most, if not all, mountain range exotic options and is developed in a multi-asset, multi-currency Black-Scholes model with time dependent parameters. The general formula not only covers existing cases but also enables the combination of diverse features from different types of exotic options. It also creates implicitly a language to describe payoffs that can be used in industrial applications to decouple the functions of payoff definition from pricing functions. Examples of several exotic options are presented, benchmarking the closed formulas' performance against Monte Carlo simulations. Results show a consistent over performance of the closed formula reducing calculation time by double digit factors.
Subjects:exotic options
mountain range
discrete lookback
closed formula
payoff language
multi-asset multi-currency model
Document Type:Working Paper
Appears in Collections:CPQF Working Paper Series, Frankfurt School of Finance and Management

Files in This Item:
File Description SizeFormat
634827219.pdf367.96 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/40174

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.