Topic
Timer Call
About: Timer Call is a research topic. Over the lifetime, 6 publications have been published within this topic receiving 60 citations.
Papers
1 Jan 2010
TL;DR: In this paper, a new derivative called the "Timer option" is introduced, which has a random date of exercise linked to the realized variance of the underlying stock. But unlike common quadraticvariation-based derivatives, the price of a timer option generally depends on the assumptions on the underlying variance process and its correlation with the stock (unless the risk free rate is equal to zero).
Abstract: In this paper, we discuss a newly introduced exotic derivative called the “Timer Option”. Instead of being exercised at a fixed maturity date as a vanilla option, it has a random date of exercise linked to the realized variance of the underlying stock. Unlike common quadraticvariation-based derivatives, the price of a timer option generally depends on the assumptions on the underlying variance process and its correlation with the stock (unless the risk-free rate is equal to zero). In a general stochastic volatility model, we first show how the pricing of a timer call option can be reduced to a one-dimensional problem. We then propose a fast and accurate almost-exact simulation technique coupled with a powerful (model-free) control variate. Examples are derived in the Hull and White and in the Heston stochastic volatility models.
33 citations
TL;DR: In this article, a time substitution as used by Duru and Kleinert in their treatment of the hydrogen atom with path integrals is performed to price timer options under stochastic volatility models.
Abstract: In this paper, a time substitution as used by Duru and Kleinert in their treatment of the hydrogen atom with path integrals is performed to price timer options under stochastic volatility models. We present general pricing formulas for both the perpetual timer call options and the finite time-horizon timer call options. These general results allow us to find closed-form pricing formulas for both the perpetual and the finite time-horizon timer options under the 3/2 stochastic volatility model as well as under the Heston stochastic volatility model. For the treatment of timer options under the 3/2 model we will rely on the path integral for the Morse potential, with the Heston model we will rely on the Kratzer potential.
21 citations
Posted Content•
TL;DR: In this article, a time substitution as used by Duru and Kleinert in their treatment of the hydrogen atom with path integrals is performed to price timer options under stochastic volatility models.
Abstract: In this paper, a time substitution as used by Duru and Kleinert in their treatment of the hydrogen atom with path integrals is performed to price timer options under stochastic volatility models. We present general pricing formulas for both the perpetual timer call options and the finite time-horizon timer call options. These general results allow us to find closed-form pricing formulas for both the perpetual and the finite time-horizon timer options under the 3/2 stochastic volatility model as well as under the Heston stochastic volatility model. For the treatment of timer option under the 3/2 model we will rely on the path integral for the Morse potential, with the Heston model we will rely on the Kratzer potential.
10 citations
Posted Content•
TL;DR: In this article, a new derivative called the "Timer option" is introduced, which has a random date of exercise linked to the accumulated variance of the underlying stock and can be used as an option.
Abstract: In this paper, we discuss a newly introduced exotic derivative called the “Timer Option”. Instead of being exercised at a fixed maturity date as a vanilla option, it has a random date of exercise linked to the accumulated variance of the underlying stock. Unlike common quadratic-variation-based derivatives, the price of a timer option generally depends on the assumptions on the underlying variance process and its correlation with the stock (unless the risk-free rate is equal to zero). In a general stochastic volatility model, we first show how the pricing of a timer call option can be reduced to a one-dimensional problem. We then propose a fast and accurate almost-exact simulation technique coupled with a powerful (model-free) control variate. Examples are derived in the Hull and White and in the Heston stochastic volatility models.
10 citations
TL;DR: In this paper, the valuation of perpetual timer call options under the Hull-White stochastic volatility model is discussed, and the triple joint distribution for the instantaneous volatility, the cumulative reciprocal volatility and the cumulative realized variance is derived.
Abstract: The valuation of perpetual timer options under the Hull–White stochastic volatility model is discussed here. By exploring the connection between the Hull–White model and the Bessel process and using time-change techniques, the triple joint distribution for the instantaneous volatility, the cumulative reciprocal volatility and the cumulative realized variance is obtained. An explicit analytical solution for the price of perpetual timer call options is derived as a Black–Scholes–Merton-type formula.
doi:10.1017/S1446181117000177
4 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2017 | 1 |
| 2011 | 3 |
| 2010 | 2 |