IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v24y1999i1p1-20.html
   My bibliography  Save this article

Reset Put Options: Valuation, Risk Characteristics, and an Application

Author

Listed:
  • Stephen F. Gray

    (Department of Commerce, University of Queensland, Brisbane QLD 4072, gray@commerce.uq.edu.au and Fuqua School of Business, Duke University, Durham NC 27708, USA)

  • Robert E. Whaley

    (Fuqua School of Business, Duke University, Durham NC 27708, USA, whaley@mail.duke.edu)

Abstract

A reset put option is similar to a standard put option except that the exercise price is reset equal to the stock price on the pre†specified reset date if this stock price exceeds the original exercise price. In this paper we derive a valuation for Mula for a reset put option and present a range of comparative statics designed to highlight the differences between a reset put and a standard put We also develop a numerical technique for valuing American†style reset puts. Finally, we apply our valuation results to assess the interest rate premiums embedded in the Geared Equity Investments offered by Macquarte Bank.

Suggested Citation

  • Stephen F. Gray & Robert E. Whaley, 1999. "Reset Put Options: Valuation, Risk Characteristics, and an Application," Australian Journal of Management, Australian School of Business, vol. 24(1), pages 1-20, June.
    • Handle: RePEc:sae:ausman:v:24:y:1999:i:1:p:1-20
    DOI: 10.1177/031289629902400101
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/031289629902400101
    Download Restriction: no
    File URL: https://libkey.io/10.1177/031289629902400101?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    2. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. I-Ming Jiang & Chia Chun Lo & Andreas Karathanasopoulos & Konstantinos Skindilias, 2017. "A risk control tool for foreign financial activities – A new derivatives pricing model," Journal of Asset Management, Palgrave Macmillan, vol. 18(4), pages 269-294, July.
    2. François-Heude, Alain & Yousfi, Ouidad, 2013. "On the liquidity of CAC 40 index options Market," MPRA Paper 47921, University Library of Munich, Germany, revised 01 Jul 2013.
    3. F. Antonelli & A. Ramponi & S. Scarlatti, 2016. "Random Time Forward-Starting Options," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(08), pages 1-25, December.
    4. François-Heude, Alain & Yousfi, Ouidad, 2013. "A Generalization of Gray and Whaley's Option," MPRA Paper 47908, University Library of Munich, Germany, revised 30 Jun 2013.
    5. Branislav Radak, 2017. "Chapman–Kolmogorov equations for multi-period equity-linked note with conditional coupons," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-15, March.
    6. Yu-Hong Liu & I-Ming Jiang & Shih-Cheng Lee & Yu-Ting Chen, 2011. "The Valuation Of Reset Options When Underlying Assets Are Autocorrelated," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(2), pages 95-114.
    7. Alain François-Heude & Ouidad Yousfi, 2014. "On the liquidity of CAC 40 index options market," Post-Print hal-02050806, HAL.
    8. Chou-Wen Wang & Szu-Lang Liao & Ting-Yi Wu, 2008. "Pricing generalized capped exchange options," Applied Financial Economics, Taylor & Francis Journals, vol. 18(9), pages 765-776.
    9. Chun-Ying Chen & Hsiao-Chuan Wang & Jr-Yan Wang, 2015. "The valuation of forward-start rainbow options," Review of Derivatives Research, Springer, vol. 18(2), pages 145-188, July.
    10. Guangming Xue & Bin Qin & Guohe Deng, 2018. "Valuation on an Outside-Reset Option with Multiple Resettable Levels and Dates," Complexity, Hindawi, vol. 2018, pages 1-13, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Weihan Li & Jin E. Zhang & Xinfeng Ruan & Pakorn Aschakulporn, 2024. "An empirical study on the early exercise premium of American options: Evidence from OEX and XEO options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(7), pages 1117-1153, July.
    2. Dybvig, Philip H. & Gong, Ning & Schwartz, Rachel, 2000. "Bias of Damage Awards and Free Options in Securities Litigation," Journal of Financial Intermediation, Elsevier, vol. 9(2), pages 149-168, April.
    3. Boyarchenko, Svetlana & Levendorskii[caron], Sergei, 2007. "Optimal stopping made easy," Journal of Mathematical Economics, Elsevier, vol. 43(2), pages 201-217, February.
    4. Robert C. Merton, 2006. "Paul Samuelson and Financial Economics," The American Economist, Sage Publications, vol. 50(2), pages 9-31, October.
    5. Ammann, Manuel & Kind, Axel & Wilde, Christian, 2003. "Are convertible bonds underpriced? An analysis of the French market," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 635-653, April.
    6. Pringles, Rolando & Olsina, Fernando & Penizzotto, Franco, 2020. "Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method," Renewable Energy, Elsevier, vol. 151(C), pages 846-864.
    7. Kim, Amy M. & Li, Huanan, 2020. "Incorporating the impacts of climate change in transportation infrastructure decision models," Transportation Research Part A: Policy and Practice, Elsevier, vol. 134(C), pages 271-287.
    8. Collan, Mikael, 2008. "New Method for Real Option Valuation Using Fuzzy Numbers," Working Papers 466, IAMSR, Åbo Akademi.
    9. Grosen, Anders & Lochte Jorgensen, Peter, 2000. "Fair valuation of life insurance liabilities: The impact of interest rate guarantees, surrender options, and bonus policies," Insurance: Mathematics and Economics, Elsevier, vol. 26(1), pages 37-57, February.
    10. Bjork, Tomas, 2009. "Arbitrage Theory in Continuous Time," OUP Catalogue, Oxford University Press, edition 3, number 9780199574742.
    11. Hoque, Ariful & Le, Thi & Hasan, Morshadul & Abedin, Mohammad Zoynul, 2024. "Does market efficiency matter for Shanghai 50 ETF index options?," Research in International Business and Finance, Elsevier, vol. 67(PB).
    12. Santos, Lúcia & Soares, Isabel & Mendes, Carla & Ferreira, Paula, 2014. "Real Options versus Traditional Methods to assess Renewable Energy Projects," Renewable Energy, Elsevier, vol. 68(C), pages 588-594.
    13. Jobst, Andreas A., 2014. "Measuring systemic risk-adjusted liquidity (SRL)—A model approach," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 270-287.
    14. Timothy Johnson, 2015. "Reciprocity as a Foundation of Financial Economics," Journal of Business Ethics, Springer, vol. 131(1), pages 43-67, September.
    15. Yongxin Yang & Yu Zheng & Timothy M. Hospedales, 2016. "Gated Neural Networks for Option Pricing: Rationality by Design," Papers 1609.07472, arXiv.org, revised Mar 2020.
    16. Sanghyo Lee & Kyunghwan Kim, 2015. "Collar Option Model for Managing the Cost Overrun Caused by Change Orders," Sustainability, MDPI, vol. 7(8), pages 1-15, August.
    17. Tabesh, Hamid, 1987. "Hedging price risk to soybean producers with futures and options: a case study," ISU General Staff Papers 1987010108000010306, Iowa State University, Department of Economics.
    18. Manley, Bruce & Niquidet, Kurt, 2010. "What is the relevance of option pricing for forest valuation in New Zealand?," Forest Policy and Economics, Elsevier, vol. 12(4), pages 299-307, April.
    19. Dapena, Jose Pablo, 2003. "On the Valuation of Companies with Growth Opportunities," Journal of Applied Economics, Universidad del CEMA, vol. 6(1), pages 1-24, May.
    20. Giandomenico, Rossano, 2006. "Valuing an American Put Option," MPRA Paper 20082, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:24:y:1999:i:1:p:1-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.