On the use of numeraires in option pricing

Simon Benninga; Tomas Björk; Zvi Werner

In this paper we discuss the significant computational simplification that occurs when option pricing is approached through the change of numeraire technique. The original impetus was a recently published paper (Hoang, Powell, Shi 1999) on endowment options; in the present paper we extend these results to the case of stochastic interest rates. We also discuss four additional option pricing problems within the framework of a change of numeraire: 1. Pricing savings plans which incorporate a choice of linkage. 2. Pricing convertible bonds. 3. Pricing employee stock ownership plans 4. Pricing options where the strike price is in a currency different from the stock price. -- Numeraire ; option ; convertible bond

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Year of publication:	01 Dec. 2001 ; [Elektronische Ressource]
Other Persons:	Benninga, Simon (contributor) ; Björk, Tomas (contributor) ; Wiener, Zvi (contributor)
Institutions:	Ekonomiska forskningsinstitutet <Stockholm> (contributor)
Publisher:	Stockholm : Ekonomiska Forskningsinst.
Subject:	Mathematische Optimierung \| Mathematical programming \| Optionspreistheorie \| Option pricing theory