We introduce a model in which a regulator employs mechanism design to embed her human capital beta signal(s) in a firm’s capital structure. This can enhance her compensation at the firm, and the value of her contract with the firm in the form of an executive stock option. We prove that the...

To value non-transferable non-hedgeable (NTNH) contingent claims and price executive stock options (ESOs), we use a replication argument to translate portfolios with NTNH derivatives into portfolios of primary assets (only) with stochastic portfolio constraints. By identifying stochastic...

External barrier options are two-asset options where the payoff is defined on one asset and the barrier is defined on another asset. In this paper, we derive the Laplace transforms of the prices and deltas for the external single and double barrier options where the underlying asset prices...

We provide methodologies to price discretely monitored exotic options when the underlying evolves according to a double exponential jump diffusion process. We show that discrete barrier or lookback options can be approximately priced by their continuous counterparts’ pricing formulae with a...

We derive semi-analytic solutions for power option prices under the Heston model; specifically, the pricing formula is shown to be valid whenever the power of the underlying asset price has a finite moment. Unlike the majority of stochastic volatility models, there remains a significant problem...

In this paper, we present closed-forms for the valuation of the barrier option whose underlying is exchange rate under the multi-dimensional Levy process, including stochastic interest rates and stochastic assets. Instantaneous forward interest rates are assumed under the Heath et al. [1992....

This paper extends the option pricing equations of Black and Scholes [1973. Journal of Political Economy 81, 637–654], Jarrow and Madan [1997. European Finance Review 1, 15–30] and Husmann and Stephan [2007. Journal of Futures Markets 27, 961–979]. In particular, we show that the length of...

We consider a Heston type inflation model in combination with a Hull–White model for nominal and real interest rates, in which all the correlations can be non-zero. Due to the presence of the Heston dynamics our derived inflation model is able to capture the implied volatility skew/smile,...

In this paper, two analytic solutions for the valuation of European-style Parisian and Parasian options under the Black–Scholes framework are, respectively, presented. A key feature of our solution procedure is the reduction of a three-dimensional problem to a two-dimensional problem through a...

Motivated by the Guaranteed Minimum Death Benefits in various deferred annuities, we investigate the calculation of the expected discounted value of a payment at the time of death. The payment depends on the price of a stock at that time and possibly also on the history of the stock price. If...