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CALLABLE PUTS AS COMPOSITE EXOTIC OPTIONS
Author(s) -
Kühn Christoph,
Kyprianou Andreas E.
Publication year - 2007
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2007.00313.x
Subject(s) - exotic option , callable bond , option value , put option , martingale (probability theory) , call option , mathematical economics , binary option , valuation of options , bellman equation , value (mathematics) , actuarial science , optimal stopping , function (biology) , embedded option , asian option , economics , valuation (finance) , mathematics , financial economics , microeconomics , finance , bond , incentive , statistics , evolutionary biology , biology
Introduced by Kifer (2000), game options function in the same way as American options with the added feature that the writer may also choose to exercise, at which time they must pay out the intrinsic option value of that moment plus a penalty. In Kyprianou (2004) an explicit formula was obtained for the value function of the perpetual put option of this type. Crucial to the calculations which lead to the aforementioned formula was the perpetual nature of the option. In this paper we address how to characterize the value function of the finite expiry version of this option via mixtures of other exotic options by using mainly martingale arguments.