Stock options as barrier contingent claims
AbstractA comprehensive model is suggested that values securities as options and consequently ordinary stock options as compound options. Extending the basic Black-Scholes model, it can incorporate common contractual features and stylized facts. More specifically, a closed form solution is derived for the price of a call option on a down-and-out call. It is then shown how the result obtained can be generalized in order to price options on complex corporate securities, allowing among other things for corporate taxation, costly financial distress and deviations from the absolute priority rule. The characteristics of the model are illustrated with numerical examples.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.
Volume (Year): 10 (2003)
Issue (Month): 2 ()
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Other versions of this item:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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