Pricing Isreali options: a pathwise approach

A E Kyprianou, K van Schaik

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

An Israeli option (also referred to as game option or recall option) generalizes an American option by also allowing the seller to cancel the option prematurely, but at the expense of some penalty. Kifer [15] shows that in the classical Black-Scholes market such contracts have unique no-arbitrage prices. In Kyprianou [20] and Kuumlhn and Kyprianou [19] characterizations were obtained for the price of two classes of Israeli options. For the general case, we give a dual resp. pathwise pricing formula similar to Rogers [23] and investigate this approach numerically.
Original languageEnglish
Pages (from-to)117-138
Number of pages22
JournalStochastics: an international journal of probability and stochastic processes
Volume79
Issue number1-2
DOIs
Publication statusPublished - Feb 2007

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