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Title:Instalment options: a closed-form solution and the limiting case PDF Logo
Authors:Griebsch, Susanne
Kühn, Christoph
Wystup, Uwe
Issue Date:2007
Series/Report no.:CPQF Working Paper Series 5
Abstract:In Foreign Exchange Markets Compound options (options on options) are traded frequently. Instalment options generalize the concept of Compound options as they allow the holder to prolong a Vanilla Call or Put option by paying instalments of a discrete payment plan. We derive a closed-form solution to the value of such an option in the Black-Scholes model and prove that the limiting case of an Instalment option with a continuous payment plan is equivalent to a portfolio consisting of a European Vanilla option and an American Put on this Vanilla option with a time-dependent strike.
Subjects:exotic options
Document Type:Working Paper
Appears in Collections:CPQF Working Paper Series, Frankfurt School of Finance and Management

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