Pricing and Applications of Digital Installment Options

Pricing and Applications of Digital Installment Options

For its theoretical interest and strong impact on financial markets, option valuation is considered one of the cornerstones of contemporary mathematical finance. This paper specifically studies the valuation of exotic options with digital payoff and flexible payment plan. By means of the Incomplete...

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Main Authors: Pierangelo Ciurlia, Andrea Gheno
Format: Article
Language:English
Published: Hindawi Limited 2012-01-01
Series:Journal of Applied Mathematics
Online Access:http://dx.doi.org/10.1155/2012/584705
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spelling doaj-4cb4fb1182a54cb7ae5667bb91279e992020-11-24T20:43:11ZengHindawi LimitedJournal of Applied Mathematics1110-757X1687-00422012-01-01201210.1155/2012/584705584705Pricing and Applications of Digital Installment OptionsPierangelo Ciurlia0Andrea Gheno1Department of Economics, University of Rome III, Via Silvio D’Amico 77, 00145 Rome, ItalyDepartment of Economics, University of Rome III, Via Silvio D’Amico 77, 00145 Rome, ItalyFor its theoretical interest and strong impact on financial markets, option valuation is considered one of the cornerstones of contemporary mathematical finance. This paper specifically studies the valuation of exotic options with digital payoff and flexible payment plan. By means of the Incomplete Fourier Transform, the pricing problem is solved in order to find integral representations of the upfront price for European call and put options. Several applications in the areas of corporate finance, insurance, and real options are discussed. Finally, a new type of digital derivative named supercash option is introduced and some payment schemes are also presented.http://dx.doi.org/10.1155/2012/584705
collection DOAJ
language English
format Article
sources DOAJ
author Pierangelo Ciurlia
Andrea Gheno
spellingShingle Pierangelo Ciurlia
Andrea Gheno
Pricing and Applications of Digital Installment Options
Journal of Applied Mathematics
author_facet Pierangelo Ciurlia
Andrea Gheno
author_sort Pierangelo Ciurlia
title Pricing and Applications of Digital Installment Options
title_short Pricing and Applications of Digital Installment Options
title_full Pricing and Applications of Digital Installment Options
title_fullStr Pricing and Applications of Digital Installment Options
title_full_unstemmed Pricing and Applications of Digital Installment Options
title_sort pricing and applications of digital installment options
publisher Hindawi Limited
series Journal of Applied Mathematics
issn 1110-757X
1687-0042
publishDate 2012-01-01
description For its theoretical interest and strong impact on financial markets, option valuation is considered one of the cornerstones of contemporary mathematical finance. This paper specifically studies the valuation of exotic options with digital payoff and flexible payment plan. By means of the Incomplete Fourier Transform, the pricing problem is solved in order to find integral representations of the upfront price for European call and put options. Several applications in the areas of corporate finance, insurance, and real options are discussed. Finally, a new type of digital derivative named supercash option is introduced and some payment schemes are also presented.
url http://dx.doi.org/10.1155/2012/584705
work_keys_str_mv AT pierangelociurlia pricingandapplicationsofdigitalinstallmentoptions
AT andreagheno pricingandapplicationsofdigitalinstallmentoptions
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