Integral equation formulation for shout options
DOI:
https://doi.org/10.21914/anziamj.v60i0.12258Keywords:
shout options, free boundary problems, integral equations.Abstract
We use an integral equation formulation approach to value shout options, which are exotic options giving an investor the ability to shout†and lock in profits while retaining the right to benefit from potentially favourable movements in the underlying asset price. Mathematically, the valuation is a free boundary problem involving an optimal exercise boundary which marks the region between shouting and not shouting. We also find the behaviour of the optimal exercise boundary for one- and two-shout options close to expiry. doi:10.1017/S1446181118000160Published
2018-10-07
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