This paper uses a multivariate normal inverse Gaussian model to develop closed-form pricing formulas for both geometric and arithmetic basket options. For geometric basket options, an exact analytical solution is possible; for arithmetic basket options, the formula is an approximation. The model...

A study of the use and improvement of Hull and White's (1988) control variate technique in pricing options is provided. It contributes to the literature in two ways. First it is shown that it is not optimal to use the entire error of a control variate against its known price (usually a...

The American early exercise feature of the Real Option to invest in a new project is important in capital budgeting and project valuation. Closed form solutions for American, and therefore Real, Options are known for two special cases; an infinite horizon generates the Merton (Bell Journal of...

This paper values American options on foreign assets in a stochastic interest rate economy using a two-point Geske and Johnson (1984) technique. The method requires the valuation of just two options: a European option and a twice-exercisable option. I first derive the risk-neutral distributions...

By applying Ho, Stapleton and Subrahmanyam's (1997, hereafter HSS) generalised Geske–Johnson (1984, hereafter GJ) method, this paper provides analytic solutions for the valuation and hedging of American options in a stochastic interest rate economy. The proposed method simplifies HSS's...

This paper generalizes and tightens Chen and Yeh's (2002) analytical upper bounds for American options under stochastic interest rates, stochastic volatility, and jumps, where American option prices are difficult to compute with accuracy. We first generalize Theorem 1 of Chen and Yeh (2002) and...

This paper utilizes the static hedge portfolio (SHP) approach of Derman et al. [Derman, E., Ergener, D., Kani, I., 1995. Static options replication. Journal of Derivatives 2, 78-95] and Carr et al. [Carr, P., Ellis, K., Gupta, V., 1998. Static hedging of exotic options. Journal of Finance 53,...

In contrast to the constant exercise boundary assumed by Broadie and Detemple (1996) [Broadie, M., Detemple, J., 1996. American option valuation: New bounds, approximations, and comparison of existing methods. Review of Financial Studies 9, 1211-1250], we use an exponential function to...

This paper extends the seminal Cox-Ross-Rubinstein ((1979), CRR hereafter) binomial model to multiple assets. It differs from previous models in that it is derived under the complete market environment specified by Duffie and Huang (1985) and He (1990).