Department of Economics2024-11-0920020270-731410.1002/fut.100482-s2.0-0036376080http://dx.doi.org/10.1002/fut.10048https://hdl.handle.net/20.500.14288/11170The 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.BusinessFinanceJournal Article178015300005Q25204