Exotic Options: A Chooser Option And Its Pricing Cover Image

Exotic Options: A Chooser Option And Its Pricing
Exotic Options: A Chooser Option And Its Pricing

Author(s): Raimonda Martinkute-Kauliene
Subject(s): Economy
Published by: Vilnius Gediminas Technical University
Keywords: call option; put option; exotic option; price; value; chooser; time to expiration; strike price;

Summary/Abstract: Financial instruments traded in the markets and investors’ situation in such markets are getting more and more complex. This leads to more complex derivative structures used for hedging that are harder to analyze and which risk is harder managed. Because of the complexity of these instruments, the basic characteristics of many exotic options may sometimes be not clearly understood. Most scientific studies have been focused on developing models for pricing various types of exotic options, but it is important to study their unique characteristics and to understand them correctly in order to use them in proper market situations. The paper examines main aspects of options, emphasizing the variety of exotic options and their place in financial markets and risk management process. As the exact valuation of exotic options is quite difficult, the article deals with the theoretical and practical aspects of pricing of chooser options that suggest a broad range of usage and application in different market conditions. The calculations made in the article showed that the price of the chooser is closely correlated with the choice time and low correlated with its strike price. So the first mentioned factor should be taken into consideration when making appropriate hedging and investing decisions.

  • Issue Year: 10/2012
  • Issue No: 2
  • Page Range: 289-301
  • Page Count: 13
  • Language: English