--%>

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 : Did you see Vueling case Did you notice

    Did you notice the Vueling case? How is this possible that an investment bank sets the objective price of its shares in €2.50 per share upon the 2nd of October, 2007, just after replacing Vueling shares at €31 per share in J

  • Q : Why is Split useful Why is Split useful?

    Why is Split useful?

  • Q : Explain the working of breakthrough for

    Explain the working of breakthrough in low-discrepancy sequences used for option valuation.

  • Q : Define Strong form market efficiency

    Strong form market efficiency: Strong form market efficiency defines that the price of a security in the market replicates all information—public and also private or within information. Strong form efficiency

  • Q : What is the Capital Cash Flow What is

    What is the Capital Cash Flow?

  • Q : Does the book value of the debt

    Does the book value of the debt all the time coincide with its market value?

  • Q : Problem on raising new capital AB

    AB Corporation has 3 million shares of common stock selling at $19 each. It also contains $25 million in bonds with coupon rate of 8%, selling at par. AB requires $10 million in new capital that it can raise by selling stock at $18, or bonds at 9% interest. The expect

  • Q : Low-discrepancy sequence or quasi

    Who proposed definition and development of low-discrepancy sequence theory or quasi random number theory?

  • Q : Additive risk in the CAPM Suppose that

    Suppose that the two securities APPL and MSFT account for the entire large cap technology component of the S&P 500 (hypothetically – of course – there are really plenty of others). Further, suppose that their weights in the S&P index were as follow

  • Q : Explain valuation method for

    We were assigned a valuation of a pharmaceutical laboratory’ shares. Which valuation method is further convenient?