Suggested Refinements to Courses on Derivatives: Presentation of Valuation Equations, Pay Off Diagrams and Managerial Application for Second Generation Options

Journal of Financial Management and Analysis, Vol. 17, No. 1, pp. 62-76, 2004

Posted: 7 Apr 2005

See all articles by Alex Faseruk

Alex Faseruk

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Christopher Deacon

Memorial University of Newfoundland - Dept. of Physics

Robert Strong

University of Maine - Department of Public Policy and Health

Abstract

This pedagogical paper should help enrich the derivatives courses that are delivered to both graduate and undergraduate students. We provide pricing formulae and payoff diagrams for some of the more popular second generation or exotic options. In spite of their growing popularity, current textbooks usually provide only cursory definitions, often without supporting mathematical equations, payoff diagrams and, most importantly, examples of their managerial application. This paper presents valuation equations, payoff diagrams and managerial applications for binary, lookback, chooser, compound, Bermuda, Asian, barrier and forward start options.

Keywords: Exotic options, Managerial Applications, Valuation Equations

JEL Classification: A23, C33, C39, G11

Suggested Citation

Faseruk, Alex and Deacon, Christopher and Strong, Robert, Suggested Refinements to Courses on Derivatives: Presentation of Valuation Equations, Pay Off Diagrams and Managerial Application for Second Generation Options. Journal of Financial Management and Analysis, Vol. 17, No. 1, pp. 62-76, 2004, Available at SSRN: https://ssrn.com/abstract=635962

Alex Faseruk (Contact Author)

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

Christopher Deacon

Memorial University of Newfoundland - Dept. of Physics

Faculty of Education
St. John's, Newfoundland A1C 5S7 A1C 5V3
Canada

Robert Strong

University of Maine - Department of Public Policy and Health

Orono, ME 04469-5774
United States

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