IDEAS home Printed from
   My bibliography  Save this paper

A Generalization of Gray and Whaley's Option


  • François-Heude, Alain
  • Yousfi, Ouidad


Options markets display interesting features. Most options are executed when they are near the money. However, the underlying asset price varies significantly during the life-time option. It is therefore difficult to predict the future option position. In order to make options' markets more liquid, the paper proposes to replace all options into At-the-Money (ATM) ones by resetting the strike price X to the asset price at pre-specified time point t, before maturity time T. Strike price is locked in at the then underlying asset price S_{t} regardless whether it is above or below S_{t}.The reset condition is in exchange for deposit in the Clearing House. The idea is to provide a general valuation of reset option of Gray and Whaley (1999) in which reset condition does not depend on the relation between the strike price and the underlying asset price. The contribution of this paper is double. First, it shows that our general model option, under specific conditions, can be generalized to the most common ones like for example Black-Scholes-Merton, forward-start and strike reset pricing formulae etc... Second, in line with Haug and Haug (2001), we use the CRR binominal approach (Cox et al., 1979) and an estimation program of the cumulative bivariate normal distribution to provide closed-form solution for the pricing of the generalized European reset option.

Suggested Citation

  • François-Heude, Alain & Yousfi, Ouidad, 2013. "A Generalization of Gray and Whaley's Option," MPRA Paper 47908, University Library of Munich, Germany, revised 30 Jun 2013.
  • Handle: RePEc:pra:mprapa:47908

    Download full text from publisher

    File URL:
    File Function: original version
    Download Restriction: no

    File URL:
    File Function: revised version
    Download Restriction: no

    References listed on IDEAS

    1. Stephen F. Gray & Robert E. Whaley, 1999. "Reset Put Options: Valuation, Risk Characteristics, and an Application," Australian Journal of Management, Australian School of Business, vol. 24(1), pages 1-20, June.
    2. Vladislav Kargin, 2005. "Lattice Option Pricing By Multidimensional Interpolation," Mathematical Finance, Wiley Blackwell, vol. 15(4), pages 635-647, October.
    3. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.),Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    4. Johnson, Herb, 1987. "Options on the Maximum or the Minimum of Several Assets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(3), pages 277-283, September.
    5. 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 637-654, May-June.
    6. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
    7. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. François-Heude, Alain & Yousfi, Ouidad, 2013. "On the liquidity of CAC 40 index options Market," MPRA Paper 47921, University Library of Munich, Germany, revised 01 Jul 2013.
    2. Guangming Xue & Bin Qin & Guohe Deng, 2018. "Valuation on an Outside-Reset Option with Multiple Resettable Levels and Dates," Complexity, Hindawi, vol. 2018, pages 1-13, April.

    More about this item


    strike reset; at-the-money option; liquidity; reset option.;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:47908. 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: (Joachim Winter). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.