Pricing Writer-Extendable Call Options with Monte Carlo Simulation

Abstract

Writer-extendable option is an exotic option that can either be exercised at its initial maturity time, or be extended to a future maturity time. Within the Black-Scholes environment, this study aims to price writer-extendable call options using the Monte Carlo simulation technique, and compare the obtained prices with the closed-form pricing formula. Numerical examples are provided using the closed-form solutions and the Monte Carlo simulation via Euler scheme, which shows that the prices obtained via the latter are accurate.