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Holder-Extendible Options with Modifiable Underlying-Assets [extrait BMI 123]

Author : Yu Wei
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This article examines a new type of exotic options, namely the ?holder-extendible options with modifiable underlying assets?. Compared to the ?writer-extendible options with modifiable underlying assets?, which are extended only when they expire out-of-the-money at the initial maturity date, these options help their holders decide freely whether or not to extend their options through the payment of an additional premium. For such European-style options, when the initial underlying asset is replaced by another asset at the same level in continuity, a closed-form pricing formula is derived; in more general cases, analytical formulas are derived to provide estimates for the option values. In addition, a certain number of examples are illustrated to show how these options can be used in corporate financing through warrants, in option pricingtheory, and in capital structure analysis with debt restructuring.Keywords: Options; Extendible options; Holder-extendible options; Options with multiple underlying assets; Compound options; Pricing and applications of exotic options.JEL Classifications: G13, G34

Auteurs :Yu Wei
Extrait de la revue BMI 123


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