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Options on a traded account: Vacation calls, vacation puts and passport options

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Author Info

  • Steven E. Shreve

    (Department of Mathematical Sciences, Carnegie Mellon University, Pittsburgh, PA 15213-3890, USA Manuscript)

  • Jan Vecer

    (Department of Mathematical Sciences, Carnegie Mellon University, Pittsburgh, PA 15213-3890, USA Manuscript)

Abstract

In this article we study options on a traded account. In terms of the actions available to the buyer, the options we study are more general than a class of options known as {\em passport options}; in terms of the model of the underlying asset they are more restrictive. Using probabilistic techniques, we find the value of these options, the optimal strategy of the buyer, and the hedging strategy the seller should use in response to a (not necessarily optimal) strategy by the buyer.

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File URL: http://link.springer.de/link/service/journals/00780/papers/0004003/00040255.pdf
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Bibliographic Info

Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 4 (2000)
Issue (Month): 3 ()
Pages: 255-274

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Handle: RePEc:spr:finsto:v:4:y:2000:i:3:p:255-274

Note: received: January 1999; final version received: August 1999
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Web page: http://www.springerlink.com/content/101164/

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Related research

Keywords: Passport options; Vacation options; Stochastic control; Hamilton-Jacobi-Bellman equation; Comparison theorem; Put-call parity; Hedging;

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Cited by:
  1. Boyle, Phelim & Potapchik, Alexander, 2008. "Prices and sensitivities of Asian options: A survey," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 189-211, February.
  2. Mahayni, Antje & Schoenmakers, John G.M., 2011. "Minimum return guarantees with fund switching rights—An optimal stopping problem," Journal of Economic Dynamics and Control, Elsevier, vol. 35(11), pages 1880-1897.
  3. Hyungsok Ahn & Antony Penaud & Paul Wilmott, 1999. "Various passport options and their valuation," Applied Mathematical Finance, Taylor & Francis Journals, vol. 6(4), pages 275-292.

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