Title

Integral equation formulation for shout options

RIS ID

129062

Publication Details

Mallier, R. & Goard, J. (2018). Integral equation formulation for shout options. Australia and New Zealand Industrial and Applied Mathematics (ANZIAM) Journal, Online First 1-21.

Abstract

We use an integral equation formulation approach to value shout options, which are exotic options giving an investor the ability to "shout" and lock in profits while retaining the right to benefit from potentially favourable movements in the underlying asset price. Mathematically, the valuation is a free boundary problem involving an optimal exercise boundary which marks the region between shouting and not shouting. We also find the behaviour of the optimal exercise boundary for one- and two-shout options close to expiry.

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Link to publisher version (DOI)

http://dx.doi.org/10.1017/S1446181118000160