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Valuation and parities for exchange options

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  • Constantinos Kardaras

Abstract

Valuation and parity formulas for both European-style and American-style exchange options are presented in a general financial model allowing for jumps, possibility of default and "bubbles" in asset prices. The formulas are given via expectations of auxiliary probabilities using the change-of-numeraire technique. Extensive discussion is provided regarding the way that folklore results such as Merton's no-early-exercise theorem and traditional parity relations have to be altered in this more versatile framework.

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  • Constantinos Kardaras, 2012. "Valuation and parities for exchange options," Papers 1206.3220, arXiv.org, revised Nov 2014.
    • Handle: RePEc:arx:papers:1206.3220
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