A class of options with stochastic lives and an extension of the Black-Scholes formula

Article Abstract:

A model for the valuation of a simple class of options with stochastic lives is proposed. The model extends the Black-Scholes formula to situations involving a stochastic time to expiration of the option contract. It assumes that only the contingent claims contract is terminated without any corresponding cancellations in the value of the underlying asset. The partial differential equation governing the value of the class of options is also derived.

Options (Finance), Stochastic analysis

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A lattice approach for pricing of multivariate contingent claims

Article Abstract:

A lattice approach called NEK for pricing multivariate contingent claims is proposed. The approach is based on the approach introduced by Boyle, Evnine and Gibbs. It allows two steps of introductory transformations of the processes of the state variables. NEK has a very fast rate of convergence, is easy to implement and can handle contingent claims with early exercise conditions.

Valuation, Lattice theory, Assets (Accounting)

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