School Seminars and Colloquia

Pricing discretely sampled path-dependent exotic options using replication methods

Complex Systems Seminar

by Dr Mark S Joshi


Institution: QUARC, Royal Bank of Scotland Group Risk Management
Date: Fri 8th October 2004
Time: 3:15 PM
Location: Th 2, Ground Floor, ICT Building (111 Barry St, Carlton)

Abstract: A semi-static replication method is introduced for pricing discretely sampled path-dependent options. It depends upon buying and selling options at the reset times of the option but does not involve trading at intervening times.

The method is model independent in that it only depends upon the existence of a pricing function for vanilla call options which depends purely on current time, time to expiry, spot and strike.

For the special case of a discrete barrier, an alternative method is developed which involves trading only at the initial time and the knockout time or expiry of the option.

For More Information: Emma Lockwood: 8344 1617 emmal@ms.unimelb.edu.au