Topic
Option-adjusted spread
About: Option-adjusted spread is a research topic. Over the lifetime, 151 publications have been published within this topic receiving 31165 citations.
Papers published on a yearly basis
Papers
TL;DR: In this paper, a theoretical valuation formula for options is derived, based on the assumption that options are correctly priced in the market and it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks.
Abstract: If options are correctly priced in the market, it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks. Using this principle, a theoretical valuation formula for options is derived. Since almost all corporate liabilities can be viewed as combinations of options, the formula and the analysis that led to it are also applicable to corporate liabilities such as common stock, corporate bonds, and warrants. In particular, the formula can be used to derive the discount that should be applied to a corporate bond because of the possibility of default.
31,990 citations
TL;DR: In this article, a one-factor model of interest rates and its application to Treasury bond options is presented, with a focus on the use of options as an alternative to bonds.
Abstract: (1990). A One-Factor Model of Interest Rates and Its Application to Treasury Bond Options. Financial Analysts Journal: Vol. 46, No. 1, pp. 33-39.
977 citations
TL;DR: In this article, the authors present an option pricing approach for bond and option pricing when short rates are lognormal, where the option pricing is based on the Lognormality of the short rates.
Abstract: (1991). Bond and Option Pricing when Short Rates are Lognormal. Financial Analysts Journal: Vol. 47, No. 4, pp. 52-59.
777 citations
TL;DR: In this paper, a closed-form solution for European options on pure discount bonds, assuming a mean-reverting Gaussian interest rate model as in Vasicek, was derived.
Abstract: This paper derives a closed-form solution for European options on pure discount bonds, assuming a mean-reverting Gaussian interest rate model as in Vasicek [8]. The formula is extended to European options on discount bond portfolios.
681 citations
TL;DR: This work presents a general overview of the common features of all spread options by discussing in detail their roles as speculation devices and risk management tools, and describes the mathematical framework used to model them.
Abstract: We survey theoretical and computational problems associated with the pricing and hedging of spread options. These options are ubiquitous in the financial markets, whether they be equity, fixed income, foreign exchange, commodities, or energy markets. As a matter of introduction, we present a general overview of the common features of all spread options by discussing in detail their roles as speculation devices and risk management tools. We describe the mathematical framework used to model them, and we review the numerical algorithms actually used to price and hedge them. There is already extensive literature on the pricing of spread options in the equity and fixed income markets, and our contribution is mostly to put together material scattered across a wide spectrum of recent textbooks and journal articles. On the other hand, information about the various numerical procedures that can be used to price and hedge spread options on physical commodities is more difficult to find. For this reason, we make a systematic effort to choose examples from the energy markets in order to illustrate the numerical challenges associated with these instruments. This gives us a chance to discuss an interesting application of spread options to an asset valuation problem after it is recast in the framework of real options. This approach is currently the object of intense mathematical research. In this spirit, we review the two major avenues to modeling energy price dynamics. We explain how the pricing and hedging algorithms can be implemented in the framework of models for both the spot price dynamics and the forward curve dynamics.
408 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2019 | 1 |
| 2018 | 2 |
| 2017 | 2 |
| 2016 | 6 |
| 2015 | 4 |
| 2014 | 8 |