IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Stock options as barrier contingent claims

  • Jan Ericsson
  • Joel Reneby

A 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.

If 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.

File URL: http://www.tandfonline.com/doi/abs/10.1080/1350486032000088921
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

Volume (Year): 10 (2003)
Issue (Month): 2 ()
Pages: 121-147

as
in new window

Handle: RePEc:taf:apmtfi:v:10:y:2003:i:2:p:121-147
Contact details of provider: Web page: http://www.tandfonline.com/RAMF20

Order Information: Web: http://www.tandfonline.com/pricing/journal/RAMF20

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Gregory R. Duffee, 1998. "The Relation Between Treasury Yields and Corporate Bond Yield Spreads," Journal of Finance, American Finance Association, vol. 53(6), pages 2225-2241, December.
  2. Mark Rubinstein., 1994. "Implied Binomial Trees," Research Program in Finance Working Papers RPF-232, University of California at Berkeley.
  3. Hayne E. Leland and Klaus Bjerre Toft., 1995. "Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads," Research Program in Finance Working Papers RPF-259, University of California at Berkeley.
  4. Longstaff, Francis A & Schwartz, Eduardo S, 1995. " A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
  5. Toft, Klaus Bjerre & Prucyk, Brian, 1997. " Options on Leveraged Equity: Theory and Empirical Tests," Journal of Finance, American Finance Association, vol. 52(3), pages 1151-80, July.
  6. Rubinstein, Mark, 1994. " Implied Binomial Trees," Journal of Finance, American Finance Association, vol. 49(3), pages 771-818, July.
  7. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
  8. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-67, May.
  9. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  10. Ericsson, Jan & Reneby, Joel, 1995. "A Framework for Valuing Corporate Securities," SSE/EFI Working Paper Series in Economics and Finance 89, Stockholm School of Economics, revised Oct 1998.
  11. P. Carr, 1995. "Two extensions to barrier option valuation," Applied Mathematical Finance, Taylor & Francis Journals, vol. 2(3), pages 173-209.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:10:y:2003:i:2:p:121-147. See general 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: (Michael McNulty)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.