THE VALUE OF AN OPTION BASED ON AN AVERAGE SECURITY VALUE

In this paper we shall discuss a financial option of which the payoff depends on the average value of the underlying security over some final time interval. After explaining what an option is about we will derive a partial differential equation for the option which is different from the partial differential equation of a simple European call option. From this we will get an expectation formula for the option value. We will give an economical as well as a mathematical argument for this expectation formula.


Issue Date:
1986
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/272350
Language:
English
Total Pages:
17
Series Statement:
REPORT 8611/B




 Record created 2018-04-30, last modified 2020-10-28

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