--%>

Explain exotic option-value of option pricing method

Explain exotic option’s value of option pricing method.

E

Expert

Verified

Avellaneda and Par´ as defined an exotic option’s value as the highest possible marginal value for which contract when hedged with any or all obtainable exchange-traded contracts. The result was which the method of option pricing also came along with its own technique for static hedging with many options. Previous to their work the only result of an option pricing model was its delta and value, only dynamic hedging was theoretically essential. With this new idea, theory became a main step closer to practice.

The other result of this technique was which the theoretical price of an exchange-traded option accurately matched its market price. This convoluted calibration of volatility surface models was redundant.

   Related Questions in Corporate Finance

  • Q : Why do a Split Why do a Split?

    Why do a Split?

  • Q : Option Trading Strategies Explain the

    Explain the term Option Trading Strategies?

  • Q : How form a portfolio with higher

    Does this make any sense to form a portfolio comprised of companies along with a higher return/dividend?

  • Q : How much confidence can an investor

    I heard conversation of the Earnings Yield Gap ratio, that is the difference among the inverse of the PER and the TIR on 10-year-bonds. This is said that if this ratio is positive then this is more advantageous to invest in equity. How much confidence can an investor

  • Q : Assignment help for Financial Statement

    HW I: Show your approach to each problem (formulas, variables, etc.) You can use Excel sheet formulas to show the work or use the Finance calculator terms. For the ABC answers: choose the correct answer and delete the rest.

  • Q : How could prestigious investment bank

    I have a doubt about the Enron case. How could this prestigious investment bank advice investing while the quotations of the shares were falling?

  • Q : How you can predict future evolution of

    Could we suppose that, as we cannot predict the future evolution of the value of shares, a good estimation would be to consider this constant during the next five years?

  • Q : Applied approaches to theory development

    Discuss and distinguish between the following applied approaches to theory development:  true-income (income statement and balance sheet approaches), efficient markets, and predictive ability.  You may want to include in your discussion any articles or studies that either supported or u

  • Q : Explain merits and demerits of standard

    Explain merits and demerits of standard market practice to find the volatility as a function of underlying.

  • Q : Portfolio return probability XY Company

    XY Company has made a portfolio of such three securities: The correlation coeffic