PRICING STEP-UP OPTIONS USING LAPLACE TRANSFORM
- Authors
- Kim, Jerim; Kim, Eyunghee; Kim, Changki
- Issue Date
- 2020
- Publisher
- KOREAN SOC COMPUTATIONAL & APPLIED MATHEMATICS-KSCAM
- Keywords
- barrier option; step-up option; option pricing; Laplace transform; regime switching; multi-barriers
- Citation
- JOURNAL OF APPLIED MATHEMATICS & INFORMATICS, v.38, no.5-6, pp.439 - 461
- Indexed
- SCOPUS
KCI
- Journal Title
- JOURNAL OF APPLIED MATHEMATICS & INFORMATICS
- Volume
- 38
- Number
- 5-6
- Start Page
- 439
- End Page
- 461
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/59126
- DOI
- 10.14317/jami.2020.439
- ISSN
- 2734-1194
- Abstract
- A step-up option is a newly developed financial instrument that simultaneously provides higher security and profitability. This paper introduces two step-up options: step-up type1 and step-up type2 options, and derives the option pricing formulas using the Laplace transform. We assume that the underlying equity price follows a regime-switching model that reflects the long-term maturity of these options. The option prices are calculated for the two types of funds, a pure stock fund composed of risky assets only and a mixed fund composed of stocks and bonds, to reflect possible variety in the fund underlying asset mix. The impact of changes in the model parameters on the option prices is analyzed. This paper provides information crucial to product developments.
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Collections - Korea University Business School > Department of Business Administration > 1. Journal Articles
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