Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process
Holder-extendable options are characterized by two maturity dates, which means the option can be exercised at either the expiration date or the extended maturity date. This paper develops a pricing framework for holder-extendable options which deals with the extended version of a stochastic volatili...
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| Format: | Article |
| Language: | English |
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Institute for Mathematical Research, Universiti Putra Malaysia
2017
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| Online Access: | http://psasir.upm.edu.my/id/eprint/51691/ http://psasir.upm.edu.my/id/eprint/51691/1/1.pdf |
| _version_ | 1848851900125937664 |
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| author | Ibrahim, Siti Nur Iqmal Ng, Teck Wee O'Hara, John G. Nawawi, A. |
| author_facet | Ibrahim, Siti Nur Iqmal Ng, Teck Wee O'Hara, John G. Nawawi, A. |
| author_sort | Ibrahim, Siti Nur Iqmal |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | Holder-extendable options are characterized by two maturity dates, which means the option can be exercised at either the expiration date or the extended maturity date. This paper develops a pricing framework for holder-extendable options which deals with the extended version of a stochastic volatility model with an Ornstein-Uhlenbeck (OU) process. The extended model allows correlation between volatility and asset returns. The method uses Fourier inversion techniques that does not require an initial guess of the characteristic functions. A closed-form pricing formula for holder-extendable options is derived for logarithmic asset price dynamics. |
| first_indexed | 2025-11-15T10:29:31Z |
| format | Article |
| id | upm-51691 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-15T10:29:31Z |
| publishDate | 2017 |
| publisher | Institute for Mathematical Research, Universiti Putra Malaysia |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-516912017-04-27T09:55:07Z http://psasir.upm.edu.my/id/eprint/51691/ Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process Ibrahim, Siti Nur Iqmal Ng, Teck Wee O'Hara, John G. Nawawi, A. Holder-extendable options are characterized by two maturity dates, which means the option can be exercised at either the expiration date or the extended maturity date. This paper develops a pricing framework for holder-extendable options which deals with the extended version of a stochastic volatility model with an Ornstein-Uhlenbeck (OU) process. The extended model allows correlation between volatility and asset returns. The method uses Fourier inversion techniques that does not require an initial guess of the characteristic functions. A closed-form pricing formula for holder-extendable options is derived for logarithmic asset price dynamics. Institute for Mathematical Research, Universiti Putra Malaysia 2017 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/51691/1/1.pdf Ibrahim, Siti Nur Iqmal and Ng, Teck Wee and O'Hara, John G. and Nawawi, A. (2017) Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process. Malaysian Journal of Mathematical Sciences, 11 (1). pp. 1-8. ISSN 1823-8343; ESSN: 2289-750X http://einspem.upm.edu.my/journal/fullpaper/vol11/1.pdf |
| spellingShingle | Ibrahim, Siti Nur Iqmal Ng, Teck Wee O'Hara, John G. Nawawi, A. Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process |
| title | Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process |
| title_full | Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process |
| title_fullStr | Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process |
| title_full_unstemmed | Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process |
| title_short | Pricing holder-extendable options in a stochastic volatility model with an Ornstein-Uhlenbeck process |
| title_sort | pricing holder-extendable options in a stochastic volatility model with an ornstein-uhlenbeck process |
| url | http://psasir.upm.edu.my/id/eprint/51691/ http://psasir.upm.edu.my/id/eprint/51691/ http://psasir.upm.edu.my/id/eprint/51691/1/1.pdf |