Stochastic Innovation Power Options Pricing Based on the Measure Transformation Methods

Stochastic Innovation Power Options are popular to investors for their simple structure and controllable risk.Faced to the difficulty of stochastic options,a new method named measure thansform is used to solve the pricing models of stochastic innovation power options.Inspired by the essence of martingale pricing,the equivalent measure is gotten by the extending numeraire,and the measure transformation equation with general payment functions is derived under the stochastic rate.Then by choosing long-term bond as the numeraire and considering the correlation between bond price and stock price,the pricing models of stochastic power options can be given conveniently.By the numerical simulation analysis on the risk characteristics of our model,the advantages of the power options can be showed.The issuers and investors of financial derivaties can learn more from our conclusions.