Modelling Exchange-Traded Barrier Options Traded in the Australian Options Market

14 Pages Posted: 27 Feb 2007

Abstract

Barrier options traded in the Australian market vary considerably in terms of the extent to which the barrier is monitored and in terms of the location of the barrier level relative to the exercise price. This paper examines the impact of these differences on prices and also on deltas and gammas. We find that it is not possible to generalize results concerning hedge parameter values to all barrier options. We find that options examined by Easton et al. (2004) do not display discontinuity of deltas at the barrier levels and that their apparent overpricing cannot be attributed to hedging difficulties.

Suggested Citation

Easton, Stephen Andrew and Gerlach, Richard H., Modelling Exchange-Traded Barrier Options Traded in the Australian Options Market. Accounting and Finance, Vol. 47, No. 1, pp. 109-122, March 2007. Available at SSRN: https://ssrn.com/abstract=965895 or http://dx.doi.org/10.1111/j.1467-629X.2006.00198.x

Stephen Andrew Easton (Contact Author)

University of Newcastle ( email )

University Drive
Callaghan, nsw 2308
Australia

Richard H. Gerlach

University of Sydney ( email )

Room 483, Building H04
University of Sydney
Sydney, NSW 2006
Australia
+ 612 9351 3944 (Phone)
+ 612 9351 6409 (Fax)

HOME PAGE: http://www.econ.usyd.edu.au/staff/richardg

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