Publication: A note on the valuation of compound options
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KU-Authors
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N/A
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Type
Embargo Status
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Abstract
The value of a compound option, an option on an option, has been derived by Geske (1976) using Fourier integrals. This article presents two alternative proofs to derive the value of a compound option. One proof is based on the martingale approach, which provides a simple and powerful tool for valuing contingent claims, The second proof uses the expectation of a truncated bivariate normal variable. These proofs allow for an intuitive interpretation of the three elements constituting the value of a compound option.
Source
Publisher
John Wiley & Sons Inc
Subject
Business, Finance
Citation
Has Part
Source
Journal Of Futures Markets
Book Series Title
Edition
DOI
10.1002/fut.10048