Premium
Trend derivatives: Pricing, hedging, and application to executive stock options
Author(s) -
Leippold Markus,
Syz Jürg
Publication year - 2007
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20233
Subject(s) - stochastic game , diversification (marketing strategy) , flexibility (engineering) , economics , stock options , stock (firearms) , financial economics , alternative investment , business , actuarial science , econometrics , microeconomics , finance , market liquidity , marketing , engineering , management , mechanical engineering
Both institutional and private investors often have only limited flexibility in timing their investment decision. They look for investments that will ideally be independent of the timing decision. In this article, a new class of derivative products whose payoff is linked to the trend of the underlying instrument is introduced. By linking the trend to the payoff, the timing of the decision becomes less important. Therefore, trend derivatives offer some time‐diversification benefits. How trend derivatives are designed and priced is shown. Due to their peculiar features, trend derivatives offer some interesting applications such as executive stock option plans. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:151–186, 2007