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Various passport options and their valuation

  • Hyungsok Ahn
  • Antony Penaud
  • Paul Wilmott
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    The passport option is a call option on the balance of a trading account. The option holder retains the gain from trading, while the writer is liable for the loss. Multi-asset passport options and passport options with discrete constraints are studied. For the first ones the pricing equations are Hamilton-Jacobi-Bellman equations. For those with discrete constraints, a linear complementary problem must be solved in order to price the option. The gain by selling passport options to utility maximizing investors and to investors who guess the market a certain percentage of the time is also examined.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13504869950079293
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    Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

    Volume (Year): 6 (1999)
    Issue (Month): 4 ()
    Pages: 275-292

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    Handle: RePEc:taf:apmtfi:v:6:y:1999:i:4:p:275-292
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    1. 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.
    2. Leland, Hayne E, 1980. " Who Should Buy Portfolio Insurance?," Journal of Finance, American Finance Association, vol. 35(2), pages 581-94, May.
    3. Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
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