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PRICING EXOTIC OPTIONS

Published online by Cambridge University Press:  01 July 2000

Sheldon M. Ross  and
J. George Shanthikumar
Sheldon M. Ross
Affiliation:
Department of Industrial Engineering and Operations Research, University of California, Berkeley, California 94720
J. George Shanthikumar
Affiliation:
Department of Industrial Engineering and Operations Research, University of California, Berkeley, California 94720
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Abstract

We show that if the payoff of a European option is a convex function of the prices of the security at a fixed set of times, then the geometric Brownian motion risk neutral option price is increasing in the volatility of the security. We also give efficient simulation procedures for determining the no-arbitrage prices of European barrier, Asian, and lookback options.

Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 14 , Issue 3 , July 2000 , pp. 317 - 326
Copyright
© 2000 Cambridge University Press

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