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

Author

Listed:
  • 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.

Suggested Citation

  • Steven E. Shreve & Jan Vecer, 2000. "Options on a traded account: Vacation calls, vacation puts and passport options," Finance and Stochastics, Springer, vol. 4(3), pages 255-274.
  • 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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    Citations

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    Cited by:

    1. Mark Broadie & Jerome B. Detemple, 2004. "ANNIVERSARY ARTICLE: Option Pricing: Valuation Models and Applications," Management Science, INFORMS, vol. 50(9), pages 1145-1177, September.
    2. repec:wsi:ijtafx:v:20:y:2017:i:04:n:s021902491750025x is not listed on IDEAS
    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.
    4. 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.
    5. Manuel Moreno & Javier F. Navas, 2008. "Australian Options," Australian Journal of Management, Australian School of Business, vol. 33(1), pages 69-93, June.
    6. 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.

    More about this item

    Keywords

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

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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