Various passport options and their valuation |
| |
| Authors: | Hyungsok Ahn Antony Penaud Paul Wilmott |
| |
| Affiliation: | 1. Credit Agricole Lazard Financial Products, 11 Moorfield Highwalk, London EC2Y 9DY, UK;2. Mathematical Institute, 24-29 St Giles', Oxford OX1 3LB, UK;3. 5 Burnham Court, Moscow Road, London W2 4SW, UK |
| |
| Abstract: | The passport option is a call option on the balance of a trading account. The option holder retains the gain from trading, while the writer is liable for the loss. Multi-asset passport options and passport options with discrete constraints are studied. For the first ones the pricing equations are Hamilton-Jacobi-Bellman equations. For those with discrete constraints, a linear complementary problem must be solved in order to price the option. The gain by selling passport options to utility maximizing investors and to investors who guess the market a certain percentage of the time is also examined. |
| |
| Keywords: | Passport Option Trading Account Hamilton-JACOBI-BELLMAN Equation Option Pricing |
|
|
