It's Your Choice: A Unified Approach to Chooser Options

International Journal of Theoretical and Applied Finance (IJTAF), 2010

Posted: 8 Jun 2010 Last revised: 9 Jun 2010

See all articles by Klaus Sandmann

Klaus Sandmann

University of Bonn - The Bonn Graduate School of Economics

Manuel Wittke

Deloitte & Touche - Financial Risk Solutions

Date Written: February 1, 2010

Abstract

We propose a unified framework for the pricing and hedging of chooser options on lognormal assets. This includes e.g. exchange or inflation rates under stochastic interest rates or equities under stochastic interest rates and dividend yields. This extends and includes chooser options under deterministic interest rates by a multidimensional model of an international economy with correlated stochastic processes. In this framework we derive closed form solutions of the arbitrage price for different specifications of chooser options. Also different hedge strategies are derived and their properties compared.

Keywords: Option pricing and hedging, interest rate risk, exchange rate risk, change of numeraire

Suggested Citation

Sandmann, Klaus and Wittke, Manuel, It's Your Choice: A Unified Approach to Chooser Options (February 1, 2010). International Journal of Theoretical and Applied Finance (IJTAF), 2010, Available at SSRN: https://ssrn.com/abstract=1621549

Klaus Sandmann

University of Bonn - The Bonn Graduate School of Economics ( email )

Adenauerallee 24-26
Bonn, D-53113
Germany

Manuel Wittke (Contact Author)

Deloitte & Touche - Financial Risk Solutions ( email )

Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
459
PlumX Metrics