Suboptimality of Asian Executive Options

Cost efficiency;Executive option;Asian option;Vasicek model;State price process;Statistics

Chen, Jit Seng

University of Waterloo

关键词: Cost efficiency;    Executive option;    Asian option;    Vasicek model;    State price process;    Statistics;   

Others  :  https://uwspace.uwaterloo.ca/bitstream/10012/6121/1/Chen_JitSeng.pdf

瑞士|英语

来源: UWSPACE Waterloo Institutional Repository

【 摘 要 】

This thesis applies the concept of cost e ciency to the design of executive compensation.In a classical Black-Scholes framework, we are able to express the cost e cient counterpartof the Asian Executive Option explicitly, and design a payothat has the same distributionas the Asian Executive Indexed Option but comes at a cheaper price. The cost e cientcounterpart of the latter option is not analytically tractable, but we are able to simulateits price.Furthermore, we extend the study of these two types of options in the presence ofstochastic interest rates modeled by a Vasicek process. We are able to derive new closedformpricing formulas for these options. A framework for crafting the state price processis introduced. From here, an explicit expression for the state process is given and itsdistribution is derived.Using the pricing formulas and the state price process, we are then able to simulatethe prices of the corresponding cost e cient counterparts in a stochastic interest rateenvironment.We conclude with some avenues for future research.