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Option Pricing: Channels, Target Zones and Sideways Markets

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  • Zura Kakushadze

Abstract

After a market downturn, especially in an uncertain economic environment such as the current state, there can be a relatively long period with a sideways market, where indexes, stocks, etc., move in channels with support and resistance levels. We discuss option pricing in such scenarios, in both cases of unattainable as well as attainable boundaries, and obtain closed-form option pricing formulas. Our results also apply to FX rates in target zones without interest rate pegging (USD/HKD, digital currencies, etc.).

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  • Zura Kakushadze, 2020. "Option Pricing: Channels, Target Zones and Sideways Markets," Papers 2006.14121, arXiv.org.
    • Handle: RePEc:arx:papers:2006.14121
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    References listed on IDEAS

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    1. Peter P. Carr & Zura Kakushadze, 2017. "FX options in target zones," Quantitative Finance, Taylor & Francis Journals, vol. 17(10), pages 1477-1486, October.
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    5. Zura Kakushadze, 2019. "Healthy... Distress... Default," Papers 1910.08531, arXiv.org, revised Oct 2019.
    6. Peter Carr, 2017. "Bounded Brownian Motion," Risks, MDPI, vol. 5(4), pages 1-11, November.
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    8. Zura Kakushadze, 2019. "Healthy. . .Distress. . . Default," Journal of Risk & Control, Risk Market Journals, vol. 6(1), pages 113-119.
    9. Broadie, Mark & Detemple, Jerome, 1995. "American Capped Call Options on Dividend-Paying Assets," The Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 161-191.
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