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Valuation Of Compound Option When The Underlying Asset Is Non-Tradable

Author

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  • YU-HONG LIU

    (Graduate Institute of Finance and Banking, National Cheng Kung University, Tainan, Taiwan)

Abstract

After Geske (1979), compound options — options on options — have been employed in many fields in which real options are applied. The formula for a compound option is convenient to use in real project investment, but it has one drawback — the assets that underlie the compound options are usually non-tradable. This article addresses this issue and proposes two new compound option pricing formulae to overcome this drawback.

Suggested Citation

  • Yu-Hong Liu, 2010. "Valuation Of Compound Option When The Underlying Asset Is Non-Tradable," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 441-458.
    • Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:03:n:s021902491000584x
    DOI: 10.1142/S021902491000584X
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    Cited by:

    1. Olubanjo Michael Adetunji & Akintola Amos Owolabi, 2016. "Valuation of Interacting Time-to-Build and Growth Real Options in Infrastructure Investments," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(12), pages 202-215, December.

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