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A Simple Method to Price Window Reset Options
Department of Finance, National Dong Hwa University, Hualien, Chinese Taipei
- 1 Department of Finance, National Dong Hwa University, Hualien, Chinese Taipei
Journal of Mathematical Finance·Volume 03 (2013)·Pages 96–102·Published 26 February 2013·DOI10.4236/jmf.2013.31008
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Abstract
A window reset option is a kind of reset options with continuous reset constraints. The issue is very important for ap plying to employee stock options in finance or reservation options on truck-only toll lanes in traffic management. Our contribution of this study is that we proposed an accurate and simple method to price window reset options. The option price is formulated as the solution of a boundary value problem of the Black-Scholes PDE. The problem is then trans formed into an initial-boundary value problem of the heat equation. Then Green ’ s function is applied to solve the heat equation problem. Finally, the option price is calculated numerically. A numerical example and some discussions are presented in this paper.
KeywordsWindow Reset OptionBlack-Scholes PDEBoundary Integral MethodGreen’s Function
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