Compound Option Valuation with Maturity Varying Volatility, Maturity Varying Yields, and Maturity Varying Interest Rates

99 Pages Posted: 3 Oct 2019

See all articles by Robert Brooks

Robert Brooks

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: September 23, 2019

Abstract

In this paper, a detailed proof is provided for the value of compound options based on geometric Brownian motion with maturity varying yields, maturity varying volatility, and maturity varying interest rates. Most research papers focused on compound options do not address yields on the underlying option nor maturity varying parameters. The purpose of this paper is to fill this gap in the literature. The model is also illustrated along with important implementation insights. Various intriguing avenues of research are also indicated.

Keywords: compound options, options, geometric Brownian motion, maturity varying parameters

JEL Classification: G13

Suggested Citation

Brooks, Robert E., Compound Option Valuation with Maturity Varying Volatility, Maturity Varying Yields, and Maturity Varying Interest Rates (September 23, 2019). Available at SSRN: https://ssrn.com/abstract=3458918 or http://dx.doi.org/10.2139/ssrn.3458918

Robert E. Brooks (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

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Tuscaloosa, AL 35487
United States
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