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Publication Detailed Description
Journal Title
Journal of Derivatives
Year (definitive publication)
2016
Language
English
Country
United States of America
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Abstract
The classic in-out parity relation establishes that the sum of European-style knock-in and knock-out barrier option prices is equal to the price of a standard European-style option. In the literature, however, it is commonly argued that such a barrier parity relationship cannot be applied to American-style barrier options. In this article, we derive novel in-out parity relations for American-style single-barrier options and show that the missing link between knock-in, knock-out, and standard options is simply the value of a non-deferrable rebate. Our results are tested through an extensive numerical analysis run under both the geometric Brownian motion and constant elasticity of variance architecture modeling setups.
Acknowledgements
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Keywords
Fields of Science and Technology Classification
- Economics and Business - Social Sciences
Funding Records
| Funding Reference | Funding Entity |
|---|---|
| UID/GES/00315/2013 | Fundação para a Ciência e a Tecnologia |
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