Abstract
In this paper, under the assumption that the exchange rate follows the extended Vasicek model, the pricing of the reset option in FBM model is investigated. Some interesting themes such as closed-form formulas for the reset option with a single reset date and the phenomena of delta of the reset jumps existing in the reset option during the reset date are discussed. The closed-form formulae of pricing for two kinds of power options are derived in the end.
Highlights
The pricing of exotic options is often an optimal stochastic problem, in which the stochastic process sometimes follows jump-diffusion process
With the exception of European and American options, a large number of new financial derivatives are derived in the international financial derivative market
The research of the power options is critically significant in both theoretical aspect and
Summary
The pricing of exotic options is often an optimal stochastic problem, in which the stochastic process sometimes follows jump-diffusion process. (2014) Pricing Study on Two Kinds of Power Options in Jump-Diffusion Models with Fractional Brownian Motion and Stochastic Rate. It is well documented that the Geometric Brownian Motion (GBM) assumption for the underlying asset’s price dynamics in the BS model fails to reflect the real facts: market return data display excess kurtosis (peaked and fat-tailed distributions), skewness, volatility clustering, long-range dependence and large, sudden movements, etc These observations reveal that a simple GBM assumption misses some important features of the data. Under the assumption that the exchange rate obeys the expanding Vasicek models, we obtain the pricing formulas of two kinds of power options under fractional jump-diffusion models.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
