A framework for valuing derivative securities


Autoria(s): Gray, P.; Gray, S. F.
Contribuinte(s)

A. Saunders

Data(s)

01/01/2001

Resumo

This paper develops a general framework for valuing a wide range of derivative securities. Rather than focusing on the stochastic process of the underlying security and developing an instantaneously-riskless hedge portfolio, we focus on the terminal distribution of the underlying security. This enables the derivative security to be valued as the weighted sum of a number of component pieces. The component pieces are simply the different payoffs that the security generates in different states of the world, and they are weighted by the probability of the particular state of the world occurring. A full set of derivations is provided. To illustrate its use, the valuation framework is applied to plain-vanilla call and put options, as well as a range of derivatives including caps, floors, collars, supershares, and digital options.

Identificador

http://espace.library.uq.edu.au/view/UQ:58435

Idioma(s)

eng

Publicador

New York University Salomon Center

Palavras-Chave #C1 #350301 Finance #710401 Finance and investment services
Tipo

Journal Article