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Game options

Author

Listed:
  • Yuri Kifer

    () (Institute of Mathematics, The Hebrew University, Givat Ram 91904 Jerusalem, Israel Manuscript)

Abstract

I introduce and study new derivative securities which I call game options (or Israeli options to put them in line with American, European, Asian, Russian etc. ones). These are contracts which enable both their buyer and seller to stop them at any time and then the buyer can exercise the right to buy (call option) or to sell (put option) a specified security for certain agreed price. If the contract is terminated by the seller he must pay certain penalty to the buyer. A more general case of game contingent claims is considered. The analysis is based on the theory of optimal stopping games (Dynkin's games). Game options can be sold cheaper than usual American options and their introduction could diversify financial markets.

Suggested Citation

  • Yuri Kifer, 2000. "Game options," Finance and Stochastics, Springer, vol. 4(4), pages 443-463.
  • Handle: RePEc:spr:finsto:v:4:y:2000:i:4:p:443-463
    Note: received: June 1999; final version received: November 1999
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    More about this item

    Keywords

    American option pricing; optimal stopping game;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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