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The n-fold compound option

Author

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  • THOMASSEN, Liesbeth
  • VAN WOUWE, Martine

Abstract

This paper revisits the compound options as introduced by R. Geske (2). Geske presented a theory for pricing an option on an option which he defined as a compound option. He developed a closed form expression for this kind of options. In this paper we will extend the notion of compound option to the n-fold compound option or compound option of order n. Moreover an interesting relationship between a k=variante normal distribution function and a (k + 1)-variante normal distribution function is proved for this intention.

Suggested Citation

  • THOMASSEN, Liesbeth & VAN WOUWE, Martine, "undated". "The n-fold compound option," Working Papers 2001041, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:2001041
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    Citations

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    Cited by:

    1. THOMASSEN, Liesbeth & VAN CASTEREN, Jan & VAN WOUWE, Martine, 2002. "Decomposition of the n-fold compound option," Working Papers 2002040, University of Antwerp, Faculty of Business and Economics.
    2. Cassimon, D. & Engelen, P. J. & Thomassen, L. & Van Wouwe, M., 2004. "The valuation of a NDA using a 6-fold compound option," Research Policy, Elsevier, vol. 33(1), pages 41-51, January.
    3. Wang, Xiandong & He, Jianmin, 2017. "A simple method for generalized sequential compound options pricing," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 85-91.
    4. Danny Cassimon & Peter-Jan Engelen & Luc Liedekerke, 2016. "When do Firms Invest in Corporate Social Responsibility? A Real Option Framework," Journal of Business Ethics, Springer, vol. 137(1), pages 15-29, August.
    5. Yu-Lin Huang & Chai-Chi Pi, 2009. "Valuation of multi-stage BOT projects involving dedicated asset investments: a sequential compound option approach," Construction Management and Economics, Taylor & Francis Journals, vol. 27(7), pages 653-666.
    6. THOMASSEN, Liesbeth & VAN WOUWE, Martine, "undated". "The influence of a stochastic interest rate on the n-fold compound option," Working Papers 2003010, University of Antwerp, Faculty of Business and Economics.
    7. Suvankar Ghosh & Xiaolin Li, 2013. "A Real Options Model for Generalized Meta-Staged Projects---Valuing the Migration to SOA," Information Systems Research, INFORMS, vol. 24(4), pages 1011-1027, December.
    8. Cassimon, D. & Engelen, P.J. & Thomassen, L. & Van Wouwe, M., 2007. "Closed-form valuation of American call options on stocks paying multiple dividends," Finance Research Letters, Elsevier, vol. 4(1), pages 33-48, March.
    9. Lee, Meng-Yu & Yeh, Fang-Bo & Chen, An-Pin, 2008. "The generalized sequential compound options pricing and sensitivity analysis," Mathematical Social Sciences, Elsevier, vol. 55(1), pages 38-54, January.
    10. Guglielmo D’Amico & Giovanni Villani, 2021. "Valuation of R&D compound option using Markov chain approach," Annals of Finance, Springer, vol. 17(3), pages 379-404, September.

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