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CALLABLE PUTS AS COMPOSITE EXOTIC OPTIONS

Christoph Kühn, Andreas E. Kyprianou

Open publisher page 57 citations

Abstract

Introduced by Kifer (2000) , game options function in the same way as American options with the added feature that the writer may also choose to exercise, at which time they must pay out the intrinsic option value of that moment plus a penalty. In Kyprianou (2004) an explicit formula was obtained for the value function of the perpetual put option of this type. Crucial to the calculations which lead to the aforementioned formula was the perpetual nature of the option. In this paper we address how to characterize the value function of the finite expiry version of this option via mixtures of other exotic options by using mainly martingale arguments.

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What this paper is about

Introduced by Kifer (2000) , game options function in the same way as American options with the added feature that the writer may also choose to exercise, at which time they must pay out the intrinsic option value of that moment plus a penalty. In Kyprianou (2004) an explicit formula was obtained for the value function of the perpetual put option of this type. Crucial to the calculations which lead to the aforementioned formula was the perpetual nature of the option. In this paper we address how to characterize the value function of the finite expiry version of this option via mixtures of other exotic options by using mainly martingale arguments.

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OpenAlex reports 57 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

Introduced by Kifer (2000) , game options function in the same way as American options with the added feature that the writer may also choose to exercise, at which time they must pay out the intrinsic option value of that moment plus a penalty. In Kyprianou (2004) an explicit formula was obtained for the value function of the perpetual put option of this type. Crucial to the calculations which lead to the aforementioned formula was the perpetual nature of the option. In this paper we address how to characterize the value function of the finite expiry version of this option via mixtures of other exotic options by using mainly martingale arguments.

Key concepts: Exotic option, Callable bond, Option value, Put option, Martingale (probability theory), Call option, Mathematical economics, Binary option

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