Footnote:
In: Journal of Computational Finance, Vol. 15, No. 1, 2011
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 22, 2010 erstellt
Description:
In this paper, we discuss a newly introduced exotic derivative called the “Timer Option”. Instead of being exercised at a fixed maturity date as a vanilla option, it has a random date of exercise linked to the accumulated variance of the underlying stock. Unlike common quadratic-variation-based derivatives, the price of a timer option generally depends on the assumptions on the underlying variance process and its correlation with the stock (unless the risk-free rate is equal to zero). In a general stochastic volatility model, we first show how the pricing of a timer call option can be reduced to a one-dimensional problem. We then propose a fast and accurate almost-exact simulation technique coupled with a powerful (model-free) control variate. Examples are derived in the Hull and White and in the Heston stochastic volatility models