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On the pricing equations of some path-dependent options

<p>This thesis consists of four papers and a summary. The common topic of the included papers are the pricing equations of path-dependent options. Various properties of barrier options and American options are studied, such as convexity of option prices, the size of the continuation region in American option pricing and pricing formulas for turbo warrants. In Paper I we study the effect of model misspecification on barrier option pricing. It turns out that, as in the case of ordinary European and American options, this is closely related to convexity properties of the option prices. We show that barrier option prices are convex under certain conditions on the contract function and on the relation between the risk-free rate of return and the dividend rate. In Paper II a new condition is given to ensure that the early exercise feature in American option pricing has a positive value. We give necessary and sufficient conditions for the American option price to coincide with the corresponding European option price in at least one diffusion model. In Paper III we study parabolic obstacle problems related to American option pricing and in particular the size of the non-coincidence set. The main result is that if the boundary of the set of points where the obstacle is a strict subsolution to the differential equation is C<sup>1</sup>-Dini in space and Lipschitz in time, there is a positive distance, which is uniform in space, between the boundary of this set and the boundary of the non-coincidence set. In Paper IV we derive explicit pricing formulas for turbo warrants under the classical Black-Scholes assumptions.</p>

Identiferoai:union.ndltd.org:UPSALLA/oai:DiVA.org:uu-6329
Date January 2006
CreatorsEriksson, Jonatan
PublisherUppsala University, Department of Mathematics, Uppsala : Matematiska institutionen
Source SetsDiVA Archive at Upsalla University
LanguageEnglish
Detected LanguageEnglish
TypeDoctoral thesis, comprehensive summary, text
RelationUppsala Dissertations in Mathematics, 1401-2049 ; 45

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