The aim of this paper is to present a stochastic model that accounts for the effects of a long-memory in volatility on option pricing. The starting point is the stochastic Black-Scholes equation involving volatility with long-range dependence. We consider the option price as a sum of classical Black-Scholes price and random deviation describing the risk from the random volatility. By using the ...

This paper studies barrier options which are chained together, each with payoff contingent on curved barriers. When the underlying asset price hits a primary curved barrier, a secondary barrier option is given to a primary barrier option holder. Then if the asset price hits another curved barrier, a third barrier option is given, and so on. We provide explicit price formulas for these options w...

Consider the performance of an options writer who mis-speciies the dynamics of the price process of the underlying asset by overestimating asset price volatility. When does he overprice the option? If he follows the hedging strategy suggested by his model, when does the terminal value of his strategy dominate the option payout? We show that both these events happen if the option payoo is a conv...

This appendix provides additional intuition based on option pricing for the result in Proposition 2. Consider the case of monopoly. At time one, the monopolist is selling a series of call options, or equivalently units bundled with put options, rather than units themselves. The marginal price charged for a unit q at time two is simply the strike price of the option sold on unit q at time one. T...

With a laboratory experiment, we study the impact of buy-options and the corresponding buy-price on revenues and bidding behavior in (online) proxy-auctions with independent private valuations. We show that temporary buy-options may reduce revenues for two reasons: At low buy-prices, the application of the buy-option avoids revenue-enhancing bidding; at high buy-prices, bidders are reluctant to...

This paper introduces a new employee option plan for lowand mid-level employees. The option plan is a possibility for the employee to exercise an accrual account at any time before maturity contingent on the stock price being above a strike level. The option is American in nature and is a combination of an accrual account and a digital option with a strike price. The optimal stopping problem as...

In this paper we extend discrete time semi-static trading strategies by also allowing for dynamic in a finite amount of options, and study the consequences model-independent super-replication prices exotic derivatives. These include duality results as well precise characterization pricing rules dynamically tradable options triggering an improvement price bounds derivatives comparison with conve...