A Monte Carlo approach to value exchange options using a single stochastic factor
AbstractExchange options give the holder the right to exchange one risky asset V for another risky asset D. The asset V is referred to as the optioned (underlying) asset, while D is the delivery asset. So, when an exchange option is valued, we generally are exposed to two sources of uncertainity, namely we have two stochastic variables. Exchange options arise quite naturally in a number of signicant nancial arrangements including bond futures contracts, investment performance, options whose strike price is an average of the experienced underlying asset price during the life ot the option and so on. In this paper we propose some algorithms to estimate exchange options by Monte Carlo simulation reducing the bi-dimensionality of valuation problem to single stochastic factor.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia in its series Quaderni DSEMS with number 08-2007.
Date of creation: May 2007
Date of revision:
Exchange Options; Monte Carlo Simulations.;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-11 (All new papers)
- NEP-CMP-2007-06-11 (Computational Economics)
- NEP-FMK-2007-06-11 (Financial Markets)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luca Grilli).
If references are entirely missing, you can add them using this form.