THE REGULARITY OF THE FREE BOUNDARY FOR STRIKE RESET OPTION

A strike reset option is an option that allows its holder to reset the strike price to the prevailing underlying asset price at a moment chosen by the holder. The pricing model of the option can be formulated as a parabolic variational inequality and the optimal reset strategy is the free boundary. The smoothness of the free boundary in some cases was showed in our article published in JDE. We would prove its smoothness in the other case in this paper by a generalized comparison principle for the variational inequality.     

A parabolic variational inequality arising from the valuation of strike reset options

A strike reset option is an option that allows its holder to reset the strike price to the prevailing underlying asset price at a moment chosen by the holder. The pricing model of the option can be formulated as a one-dimensional parabolic variational inequality, or equivalently, a free boundary problem, where the free boundary just corresponds to the optimal reset strategy adopted by the holder of the option. This paper is concerned with the theoretical analysis of the model. The existence and uniqueness of the solution are established. Furthermore, we study properties of the free boundary. The monotonicity and C^∞ smoothness of the free boundary are proven in some situations.     

Free boundary problem concerning pricing convertible bond

In this paper, we consider some behaviors of the optimal conversion boundaries (i.e. free boundaries) of American‐style convertible bond with finite horizon in some case. The bond's holder may convert it into the stock of its issued firm at any time before maturity, and the firm may call it at any time before maturity. Its pricing model is a parabolic variational inequality, in which the fundamental variables are time and the stock price of the bond's issuer. We achieve some properties of the free boundary, besides the existence and uniqueness of the solution of the variational inequality, such as: the monotonicity, the boundedness, smoothness and its starting point. Moreover, we analyze the relationship between the free boundary and the parameters in the problem, as well as, obtain the critical condition where the free boundary is a constant independent of time. Copyright © 2011 John Wiley & Sons, Ltd.     

The British Put Option

Abstract

We present a new put option where the holder enjoys the early exercise feature of American options whereupon his payoff (deliverable immediately) is the ‘best prediction’ of the European payoff under the hypothesis that the true drift of the stock price equals a contract drift. Inherent in this is a protection feature which is key to the British put option. Should the option holder believe the true drift of the stock price to be unfavourable (based upon the observed price movements) he can substitute the true drift with the contract drift and minimize his losses. The practical implications of this protection feature are most remarkable as not only can the option holder exercise at or above the strike price to a substantial reimbursement of the original option price (covering the ability to sell in a liquid option market completely endogenously) but also when the stock price movements are favourable he will generally receive higher returns at a lesser price. We derive a closed form expression for the arbitrage-free price in terms of the rational exercise boundary and show that the rational exercise boundary itself can be characterized as the unique solution to a nonlinear integral equation. Using these results we perform a financial analysis of the British put option that leads to the conclusions above and shows that with the contract drift properly selected the British put option becomes a very attractive alternative to the classic American put.     

国内外利率为随机的双币种重置型期权定价

双币种重置期权的特征是指在终端期T时的收益依赖于预先设定的t<,0>时刻标的资产的价格与执行价K>0(事先给定)的大小关系重新设置期权的执行价从而给出其定价,这种期权是投资于外国资产的一种合约,其风险不仅依赖外国资产价格的变化,还受外国货币的汇率以及国内外两种利率波动的影响,所以在实际应用方面十分广泛.本文首先就标的资...     

一类永久博弈期权的定价

博弈期权是由Kifer引进的,本质上是美式期权的一种,它使买卖双方都有权在到期日前的任何时刻中止合约来维护自己的权益。在股票波动率非常数时,对一类特殊类型的博弈期权进行了研究,通过解一个自由边界问题,得到了其价格的闭式解。     

On the regularity of American options with regime-switching uncertainty

We study the regularity of the stochastic representation of the solution of a class of initial–boundary value problems related to a regime-switching diffusion. This representation is related to the value function of a finite-horizon optimal stopping problem such as the price of an American-style option in finance. We show continuity and smoothness of the value function using coupling and time-change techniques. As an application, we find the minimal payoff scenario for the holder of an American-style option in the presence of regime-switching uncertainty under the assumption that the transition rates are known to lie within level-dependent compact sets.     

基于教育基金保险的期权定价

本文基于文献[1]引入一种基于教育年金保险的欧式看涨期权,它赋予合约持有人在约定时间以约定价格购买一份连续支付一定年限的教育年金的权利,本文运用保险精算和期权定价的二叉树方法对其进行的定价,并说明这种合约方便于一些低收入家庭进行教育投资.     

股价服从指数O-U过程的多点重置期权定价

本文在风险中性定价原则下,得到了股价服从指数O-U(Ornstein-Uhlenbeck)过程的n个重置日期m个执行价格的重置期权定价,又在利率服从扩展Vasicek模型下,得到了n个重置日期m个执行价格的重置期权定价.     

固定支付利率抵押贷款定价的一般原理

利用期权定价理论,固定支付利率抵押贷款定价问题可以模型为一个自由边界问题或变分不等式方程．该文用偏微分方程理论证明了抵押贷款价格受一些因素影响的结果,并通过具体计算实例说明了抵押贷款的风险特性．     

基于退休金保险的期权定价

本文引入一种基于退休年金的欧式看涨期权 ,它赋予合约持有者在退休年龄或其它年龄以某一约定的价格 (执行价格 )购买一份退休年金受益的机会 .通过建立相关的精算模型对一些特定情形的定价进行了阐述 ,并与传统的退休金合约进行了比较     

Approximations for the values of american options

The solution of the American option valuation problem is the solution of a parabolic partial differential equation satisfying free boundary conditions. The free boundary represents the critical price, at which the option should be exercised. In this paper the free boundary is determined by an algebraic relation and an approximate solution derived. A suitable modification of the approximate solution gives the exact solution. The uniqueness of the free boundary implies the expression determined by the algebraic relation is the true critical price     

Optimal system of Lie group invariant solutions for the Asian option PDE

Asian options are useful financial products as they guard against large price manipulations near the termination date of the contract. In addition, they are often cheaper than their vanilla European counterparts. Previous analyses of the Asian option partial differential equation (PDE) have obtained analytical solutions for the fixed strike (arithmetically averaged) Asian option (and then only with certain assumptions on the boundary conditions). Using Lie symmetry analysis we obtain an optimal system of Lie point symmetries and demonstrate that many (usually ad hoc) reductions of the Asian option PDE are contained in this minimal set. We analyse each reduction member and the feasibility of its resulting invariant solution with the boundary conditions. We show that the numerical simulations on a reduced equation are more efficient than on the original specified problem. In addition, we have found new analytical solutions in terms of Fourier transforms for the floating strike Asian option as well as the fixed strike Asian option without the simplification of the domain. Copyright © 2011 John Wiley & Sons, Ltd.     

A variational inequality arising from European option pricing with transaction costs

In this paper we present a method which can transform a variational inequality with gradient constraints into a usual two obstacles problem in one dimensional case.The prototype of the problem is a parabolic variational inequality with the constraints of two first order differential inequalities arising from a two-dimensional model of European call option pricing with transaction costs.We obtain the monotonicity and smoothness of two free boundaries.     

跳扩散模型下一种创新的重置期权定价

首先在风险中性测度下建立股票价格的跳过程为Poisson过程,跳跃高度服从对数正态分布时股票价格的随机微分方程,利用期权定价的鞅方法推导得到了欧式重置看涨期权的价格以及一种创新的重置看涨期权的定价公式．最后给出了一个数值计算的例子,说明了创新的重置看涨期权价格要大于或等于传统的重置看涨期权和欧式看涨期权价格,并从理论上进行解释．     

具有多时点重置的欧式重置权证定价

考虑了一类具有多个时间点重置执行价格的欧式熊市(或牛市)重置权证定价,应用鞅定价方法和多维正态分布函数,得到了该类权证价格的显示解和△对冲策略,推广了Gray和Whaley的单时点重置权证定价模型.     

American Call Options Under Jump‐Diffusion Processes – A Fourier Transform Approach

We consider the American option pricing problem in the case where the underlying asset follows a jump‐diffusion process. We apply the method of Jamshidian to transform the problem of solving a homogeneous integro‐partial differential equation (IPDE) on a region restricted by the early exercise (free) boundary to that of solving an inhomogeneous IPDE on an unrestricted region. We apply the Fourier transform technique to this inhomogeneous IPDE in the case of a call option on a dividend paying underlying to obtain the solution in the form of a pair of linked integral equations for the free boundary and the option price. We also derive new results concerning the limit for the free boundary at expiry. Finally, we present a numerical algorithm for the solution of the linked integral equation system for the American call price, its delta and the early exercise boundary. We use the numerical results to quantify the impact of jumps on American call prices and the early exercise boundary.     

Optimal stopping, free boundary, and American option in a jump-diffusion model

This paper considers the American put option valuation in a jump-diffusion model and relates this optimal-stopping problem to a parabolic integro-differential free-boundary problem, with special attention to the behavior of the optimal-stopping boundary. We study the regularity of the American option value and obtain in particular a decomposition of the American put option price as the sum of its counterpart European price and the early exercise premium. Compared with the Black-Scholes (BS) [5] model, this premium has an additional term due to the presence of jumps. We prove the continuity of the free boundary and also give one estimate near maturity, generalizing a recent result of Barleset al. [3] for the BS model. Finally, we study the effect of the market price of jump risk and the intensity of jumps on the American put option price and its critical stock price.     

Debt–equity swap with finite time horizon—variational inequality approach

This paper concerns the finite-horizon optimal reorganization problem under debt–equity swap. The model of equity is formulated as a parabolic variational inequality, or equivalently, a free boundary problem, where the free boundary corresponds to the optimal reorganization boundary. The existence and uniqueness of the solution are proven and the behavior of the free boundary, such as smoothness, monotonicity and boundedness, is studied. To the best of our knowledge, this is the first complete set of results on debt–equity swap for finite maturity obtained using PDE techniques.     

固定执行价格下回望看涨期权保险精算定价

利用保险精算方法,将期权定价问题转化为纯保费确定问题,根据股票价格过程的实际概率测度推导出了无风险利率为常数时,固定执行价格下回望看涨期权定价公式,验证了当标的资产的期望收益率等于无风险利率时,保险精算定价和风险中性定价的一致性.最后通过实例分析了保险精算价格和风险中性价格的差异,并利用Matlab编程得到了保险精算价格与标的资产期望收益率之间的关系.