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The valuation of knock-out power calls under Black-Scholes framework

Knock-out power calls are options that incorporate barriers to the valuation of power calls. Introducing barriers to power calls reduces the costs to hold power calls which are known to have higher leverage than the standard vanillas. In this paper, we model the valuation of knock-out power calls...

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Main Authors: Sawal, A. S., Ibrahim, S. N. I., Laham, M. F.
Format: Article
Published: Lviv Polytechnic National University 2022
Online Access:http://psasir.upm.edu.my/id/eprint/102461/
https://science.lpnu.ua/mmc/all-volumes-and-issues/volume-9-number-1-2022/valuation-knock-out-power-calls-under-black
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id my.upm.eprints.102461
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spelling my.upm.eprints.1024612023-04-12T01:32:37Z http://psasir.upm.edu.my/id/eprint/102461/ The valuation of knock-out power calls under Black-Scholes framework Sawal, A. S. Ibrahim, S. N. I. Laham, M. F. Knock-out power calls are options that incorporate barriers to the valuation of power calls. Introducing barriers to power calls reduces the costs to hold power calls which are known to have higher leverage than the standard vanillas. In this paper, we model the valuation of knock-out power calls using Crank–Nicolson and Monte Carlo simulation under Black–Scholes environment. Results show that Crank–Nicolson is more accurate and more efficient than Monte Carlo simulation for pricing knock-out power calls. Lviv Polytechnic National University 2022 Article PeerReviewed Sawal, A. S. and Ibrahim, S. N. I. and Laham, M. F. (2022) The valuation of knock-out power calls under Black-Scholes framework. Mathematical Modeling and Computing, 9 (1). pp. 57-64. ISSN 2312-9794 https://science.lpnu.ua/mmc/all-volumes-and-issues/volume-9-number-1-2022/valuation-knock-out-power-calls-under-black 10.23939/mmc2022.01.057
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
description Knock-out power calls are options that incorporate barriers to the valuation of power calls. Introducing barriers to power calls reduces the costs to hold power calls which are known to have higher leverage than the standard vanillas. In this paper, we model the valuation of knock-out power calls using Crank–Nicolson and Monte Carlo simulation under Black–Scholes environment. Results show that Crank–Nicolson is more accurate and more efficient than Monte Carlo simulation for pricing knock-out power calls.
format Article
author Sawal, A. S.
Ibrahim, S. N. I.
Laham, M. F.
spellingShingle Sawal, A. S.
Ibrahim, S. N. I.
Laham, M. F.
The valuation of knock-out power calls under Black-Scholes framework
author_facet Sawal, A. S.
Ibrahim, S. N. I.
Laham, M. F.
author_sort Sawal, A. S.
title The valuation of knock-out power calls under Black-Scholes framework
title_short The valuation of knock-out power calls under Black-Scholes framework
title_full The valuation of knock-out power calls under Black-Scholes framework
title_fullStr The valuation of knock-out power calls under Black-Scholes framework
title_full_unstemmed The valuation of knock-out power calls under Black-Scholes framework
title_sort valuation of knock-out power calls under black-scholes framework
publisher Lviv Polytechnic National University
publishDate 2022
url http://psasir.upm.edu.my/id/eprint/102461/
https://science.lpnu.ua/mmc/all-volumes-and-issues/volume-9-number-1-2022/valuation-knock-out-power-calls-under-black
_version_ 1762963291519320064
score 13.211869

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