Game Option Valuation Model
Date Issued
2005
Date
2005
Author(s)
Su, Shu-Jiun
DOI
en-US
Abstract
In Kifer (2000), a new derivative security called game option was introduced. Game option, also called Israeli option, is a contract which enables both its holder (buyer) and writer (seller) to stop it at any time before expiration. That is, its buyer can exercise the right to buy (for a call) or to sell (for a put) a specified underlying asset at a predetermined price, and its seller can cancel the contract by paying the buyer the early exercise payoff plus an amount of penalty. Although some literatures probed into the valuation model of this new derivative, efficient numerical methods have not been developed yet, and both its free boundary problem and the corresponding variational inequalities have not been constructed. Throughout this thesis, we only consider the most general case of game-type contingent claims for its valuation. First we propose the rules of penalty format, choose a more practical one, and apply the familiar binomial tree method. Then we construct its free boundary problem, formulate the corresponding variational inequalities, and use finite-difference method to solve it. Finally, we compare the above results and bring up some discussions.
Subjects
選擇權
評價模型
數值方法
有限差分法
二元樹狀模型
option
option pricing
option valuation
finite difference
binomial tree
Type
thesis
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