19.6 Compound option(page 437) Option to buy /sell an option Call on cal Put on call Call on put -Put on put Can be valued analytically Price is quite low compared with a regular option Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 19.6 Compound Option (page 437) • Option to buy / sell an option – Call on call – Put on call – Call on put – Put on put • Can be valued analytically • Price is quite low compared with a regular option
19.7 Chooser Option“ s You like it” (page 438) Option starts at time 0, matures at T2 At T1(0<TI< T2 buyer chooses whether it is a put or call A few lines of algebra shows that this is a package Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 19.7 Chooser Option “As You Like It” (page 438) • Option starts at time 0, matures at T2 • At T1 (0 < T1 < T2 ) buyer chooses whether it is a put or call • A few lines of algebra shows that this is a package
198 Chooser Option as a Package At time T, the value is max(c, p) From put-call parity p=cte r(T2-71) K Seq(t2-7) The value at timet is therefore C+e-q(2-7i) max(o, Ke-(r-g(2 Ti This is a call maturing at time T, plus a put maturing at time Ty Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 19.8 Chooser Option as a Package 1 2 1 ( ) ( )( ) 1 ( ) 1 ( ) 1 max( 0, ) max( , ) 2 1 2 1 2 1 2 1 T T c e K e S T p c e K S e T c p q T T r q T T r T T q T T a put maturing at time This i s a call maturing at time plus The value at time i s therefore From put - call parity A t time the value i s + − = + − − − − − − − − − −
19.9 Barrier Options(page 439) Option comes into existence only if stock price hits barrier before option maturity n’ options Option dies if stock price hits barrier before option maturity Out options Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 19.9 Barrier Options (page 439) • Option comes into existence only if stock price hits barrier before option maturity – ‘In’ options • Option dies if stock price hits barrier before option maturity – ‘Out’ options