TY - JOUR
T1 - The valuation of compound options
T2 - A correction and an extension
AU - Chen, Ren Raw
AU - He, Wei
PY - 2015/6/1
Y1 - 2015/6/1
N2 - In a 1979 paper, Robert Geske extended the Black-Scholes model to price compound options. The model, in addition to compound options, can be used to price risky debts and American options with known dividends. This article documents the typographical errors in the Greek calculations of the model. Because the Greeks do play a crucial role in hedging, it is helpful that these errors are corrected. For the sake of completeness, this article provides detailed derivations of the Greek formulas and four other important Greeks that are not present in the original paper. Finally, numerical examples are provided to demonstrate the magnitude of the errors.
AB - In a 1979 paper, Robert Geske extended the Black-Scholes model to price compound options. The model, in addition to compound options, can be used to price risky debts and American options with known dividends. This article documents the typographical errors in the Greek calculations of the model. Because the Greeks do play a crucial role in hedging, it is helpful that these errors are corrected. For the sake of completeness, this article provides detailed derivations of the Greek formulas and four other important Greeks that are not present in the original paper. Finally, numerical examples are provided to demonstrate the magnitude of the errors.
UR - http://www.scopus.com/inward/record.url?scp=84983119357&partnerID=8YFLogxK
U2 - 10.3905/jod.2015.22.4.092
DO - 10.3905/jod.2015.22.4.092
M3 - 文章
AN - SCOPUS:84983119357
SN - 1074-1240
VL - 22
SP - 92
EP - 104
JO - Journal of Derivatives
JF - Journal of Derivatives
IS - 4
ER -