Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5102153 | Mathematical Social Sciences | 2017 | 7 Pages |
Abstract
This paper presents a new and simple method to derive the pricing formula for generalized sequential compound options (SCOs). Multi-fold generalized SCOs are defined as compound options on (compound) options, where the call/put property of each fold can be arbitrarily assigned. To obtain the analytic pricing formula for n-fold generalized SCOs, we prove and generalize a mathematical expectation related to multivariate normal variables, which are potentially very useful in pricing many types of option. Subsequently, with the help of the proven conclusions, the n-fold generalized SCOs pricing formulas for the diffusion model and the log-normal jump-diffusion model are derived. Finally, some possible computational methods for the calculation of SCOs price are presented.
Related Topics
Physical Sciences and Engineering
Mathematics
Applied Mathematics
Authors
Xiandong Wang, Jianmin He,