Various passport options and their valuation
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.
Year of publication: |
1999
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Authors: | Ahn, Hyungsok ; Penaud, Antony ; Wilmott, Paul |
Published in: |
Applied Mathematical Finance. - Taylor & Francis Journals, ISSN 1350-486X. - Vol. 6.1999, 4, p. 275-292
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Publisher: |
Taylor & Francis Journals |
Keywords: | Passport Option Trading Account Hamilton-JACOBI-BELLMAN Equation Option Pricing |
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