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Early Exercise Of American Put Options
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Book Synopsis Trading and Pricing Financial Derivatives by : Patrick Boyle
Download or read book Trading and Pricing Financial Derivatives written by Patrick Boyle and published by Walter de Gruyter GmbH & Co KG. This book was released on 2018-12-17 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: Trading and Pricing Financial Derivatives is an introduction to the world of futures, options, and swaps. Investors who are interested in deepening their knowledge of derivatives of all kinds will find this book to be an invaluable resource. The book is also useful in a very applied course on derivative trading. The authors delve into the history of options pricing; simple strategies of options trading; binomial tree valuation; Black-Scholes option valuation; option sensitivities; risk management and interest rate swaps in this immensely informative yet easy to comprehend work. Using their vast working experience in the financial markets at international investment banks and hedge funds since the late 1990s and teaching derivatives and investment courses at the Master's level, Patrick Boyle and Jesse McDougall put forth their knowledge and expertise in clearly explained concepts. This book does not presuppose advanced mathematical knowledge, though it is presented for completeness for those that may benefit from it, and is designed for a general audience, suitable for beginners through to those with intermediate knowledge of the subject.
Book Synopsis The Early Exercise Premium in American Put Option Prices by : Malin Engstrom
Download or read book The Early Exercise Premium in American Put Option Prices written by Malin Engstrom and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study estimates the value of the early exercise premium in American put option prices using Swedish equity options data. The value of the premium is found as the deviation of the American put price from European put-call parity, and in addition a theoretical estimate of the premium is computed. The empirically found premium is also used in a modified version of the control variate approach to value American puts. The results indicate a substantial value of the early exercise premium, where the premium derived from put-call parity is higher than the theoretical premium. The premium also increases with moneyness and time left to expiration, while the effect of interest rate and volatility depends on the moneyness of the option. The modified control variate technique works reasonably well relative the theoretical models. In particular, for deep in-the-money options, this technique is superior.
Book Synopsis Early Exercise Error and the Pricing of American Put Options by : David H. Goldenberg
Download or read book Early Exercise Error and the Pricing of American Put Options written by David H. Goldenberg and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I introduce an economically viable total error measure appropriate for American put option pricing algorithms which incorporates both pure pricing error and early exercise error. A rational option pricing result that motivates the pure pricing error is derived. Early exercise error is motivated by comparing expected discounted profits from early exercising the estimated model vs. the true optimal early exercise model. The measure applies to any American put option pricing algorithm and is illustrated for a modified Binomial algorithm. Economic significance is defined and early exercise error is seen to be economically significant.
Book Synopsis American Put Options by : Donna Salopek
Download or read book American Put Options written by Donna Salopek and published by CRC Press. This book was released on 1997-03-15 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: An American put option gives its owner the right to sell a share of stock at a given specified price on or before a given date. This book provides a detailed comparison of recent works on the American put option from both theoretical and computational approaches.
Book Synopsis Early Exercise of American Put Options by : Malin Engstrom
Download or read book Early Exercise of American Put Options written by Malin Engstrom and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate how well the actual exercise behaviour of American put options corresponds to the early exercise rules using Swedish equity option data. The numerical binomial model according to Cox et al. (1979) is used to compute a critical exercise price, above which a put option should be exercised early, in order to establish the theoretically optimal early exercise behaviour. We find several examples of irrational early exercise behaviour, both faulty actual exercises and failures to exercise. Most of the decisions to exercise the put options conform to rational exercise behaviour, whereas a large number of failures to exercise are found. This suggests that traders do not monitor their put option positions with sufficient care. By carrying out a sensitivity analysis, we conclude that the results persist after taking into account transaction costs associated with option exercise and the possibility that the volatility is not correctly estimated. A direct model-independent test of the failures to exercise, where the exercise value of the option is compared to its market bid price, shows that the results cannot be explained by the choice of model. Most of the found failures are regarded as failures also according to the direct test. Finally, we compute the average loss due to incorrect exercise behaviour in order to assess the economic significance of the results. Although occurring frequently, the failures to exercise do not appear to be costly.
Download or read book Options Markets written by John C. Cox and published by Prentice Hall. This book was released on 1985 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt: Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.
Book Synopsis Early Exercise Regions for Exotic Options by : Ken Seng Tan
Download or read book Early Exercise Regions for Exotic Options written by Ken Seng Tan and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article examines early exercise regions for American options on multiple assets and average-price options. One feature of the early exercise region for a standard American put option on a single asset is that, at any given time, there exists a critical stock price below which it is optimal to exercise the option. In other words, if it is optimal to exercise the option at a particular stock price at a particular time, it is also optimal to exercise in any state where the option has higher intrinsic value. We show that this property does not hold in general for non- standard options. In the case of options on multiple assets, there can be many states where it is better to hold an option whose intrinsic value is higher than in states where it is better to exercise. The number of such states depends on factors such as the nature of the option, the time remaining until maturity, the correlation between the assets, and their volatilities. In the case of average-price put options, an interesting feature is that the option is not exercised optimally at points with the highest intrinsic value at any time prior to maturity unless the interest rate is very high.
Book Synopsis Dynamic Hedging by : Nassim Nicholas Taleb
Download or read book Dynamic Hedging written by Nassim Nicholas Taleb and published by John Wiley & Sons. This book was released on 1997-01-14 with total page 536 pages. Available in PDF, EPUB and Kindle. Book excerpt: Destined to become a market classic, Dynamic Hedging is the only practical reference in exotic options hedgingand arbitrage for professional traders and money managers Watch the professionals. From central banks to brokerages to multinationals, institutional investors are flocking to a new generation of exotic and complex options contracts and derivatives. But the promise of ever larger profits also creates the potential for catastrophic trading losses. Now more than ever, the key to trading derivatives lies in implementing preventive risk management techniques that plan for and avoid these appalling downturns. Unlike other books that offer risk management for corporate treasurers, Dynamic Hedging targets the real-world needs of professional traders and money managers. Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management. Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.
Book Synopsis Estimating the Early Exercise Premium of American Put Index Options by : Ako Doffou
Download or read book Estimating the Early Exercise Premium of American Put Index Options written by Ako Doffou and published by . This book was released on 2019 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines empirically the value of early exercise by testing the ability of two American put valuation models to predict the early exercise premium for the S&P 100 American put options. An accuracy test and a quality test are performed on (1) the MacMillan, Barone-Adesi and Whaley model, and (2) the Carr, Jarrow and Myneni model. The test results show that early exercise premium is significant regardless of moneyness. Moreover, consistent with the theory, the value of early exercise is significantly negatively related to moneyness and interest rates and significantly positively related to time to maturity and to the volatility of the underlying index. Both American put valuation models examined do not fully capture the value of early exercise embedded in American put prices.
Book Synopsis European Put-Call Parity and the Early Exercise Premium for American Currency Options by : Geoffrey Poitras
Download or read book European Put-Call Parity and the Early Exercise Premium for American Currency Options written by Geoffrey Poitras and published by . This book was released on 2016 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: The European put-call parity condition is used to estimate the early exercise premium for American currency options traded on the Philadelphia Stock Exchange. Using a sample of 331 pairs of call and put options with the same exercise price and time to expiration, evidence is provided for early exercise premiums that average 5.03% for put options and 4.60% for call options. The premiums for both call and put options are strongly related to the interest rate differential and time to expiration. These results have implications for the use of European option pricing models in the valuation of American options.
Book Synopsis American Index Put Options Early Exercise Premium Estimation by : Ako Doffou
Download or read book American Index Put Options Early Exercise Premium Estimation written by Ako Doffou and published by . This book was released on 2008 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines empirically the value of early exercise by testing the ability of two American put valuation models to predict the early exercise premium for the Samp;P 100 American put options. An accuracy test and a quality test are performed on (1) the MacMillan (1986) amp; Barone-Adesi and Whaley (1987) model, and (2) the Carr, Jarrow and Myneni(1992) model. The test results show that early exercise premium is significant regardless of moneyness. Moreover, consistent with the theory, the value of early exercise is significantly negatively related to moneyness and interest rates and significantly positively related to time to maturity and to the volatility of the underlying index. Both American put valuation models examined do not fully capture the value of early exercise embedded in American put prices.
Book Synopsis Computing the Optimal Early Exercise Boundary and the Premium for American Put Options by : Sze Ki Tang
Download or read book Computing the Optimal Early Exercise Boundary and the Premium for American Put Options written by Sze Ki Tang and published by . This book was released on 2010 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Hints for an Extension of the Early Exercise Premium Formula for American Options by : Hans-Peter Bermin
Download or read book Hints for an Extension of the Early Exercise Premium Formula for American Options written by Hans-Peter Bermin and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The characterization of the American put option price is still an open issue. From the beginning of the nineties there exists a non-closed formula for this price but nontrivial numerical computations are required to solve it. Strong efforts have been made to propose computational efficient methods but few of them have strong mathematical reasoning to ascertain why these methods work well and how important it is to consider a good approximation to the boundary or to the smooth pasting condition. We present an extension of the American put price aiming to catch weaknesses of the numerical methods given in the literature.
Book Synopsis Early Exercise of American Put Options by : Malin Engström
Download or read book Early Exercise of American Put Options written by Malin Engström and published by . This book was released on 1998 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis American Put Index Options Early Exercise Premium Estimation by : Ako Doffou
Download or read book American Put Index Options Early Exercise Premium Estimation written by Ako Doffou and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines empirically the value of early exercise by testing the ability of two American put valuation models to predict the early exercise premium for the S&P100 American put options. An accuracy test and a quality test are performed on (1) the MacMillan (1986) & Barone-Adesi and Whaley (1987) model, and (2) the Carr, Jarrow and Myneni (1992) model. The test results show that early exercise premium is significant regardless of moneyness. Moreover, consistent with the theory, the value of early exercise is significantly negatively related to moneyness and interest rates and significantly positively related to time to maturity and to the volatility of the underlying index. Both American put valuation models examined misprice the early exercise premium embedded in American put prices.
Book Synopsis Mathematical Models of Financial Derivatives by : Yue-Kuen Kwok
Download or read book Mathematical Models of Financial Derivatives written by Yue-Kuen Kwok and published by Springer Science & Business Media. This book was released on 2008-07-10 with total page 541 pages. Available in PDF, EPUB and Kindle. Book excerpt: This second edition, now featuring new material, focuses on the valuation principles that are common to most derivative securities. A wide range of financial derivatives commonly traded in the equity and fixed income markets are analysed, emphasising aspects of pricing, hedging and practical usage. This second edition features additional emphasis on the discussion of Ito calculus and Girsanovs Theorem, and the risk-neutral measure and equivalent martingale pricing approach. A new chapter on credit risk models and pricing of credit derivatives has been added. Up-to-date research results are provided by many useful exercises.
Book Synopsis Option Pricing by : Menachem Brenner
Download or read book Option Pricing written by Menachem Brenner and published by Free Press. This book was released on 1983 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt:
