Option Pricing When Changes of the Underlying Asset Prices Are Restricted
George J Jiang, Guanzhong Pan, Lei Shi
DOI: 10.4236/jmf.2011.12004   PDF    HTML     4,741 Downloads   9,837 Views   Citations


Exchanges often impose daily limits for asset price changes. These restrictions have a direct impact on the prices of options traded on these assets. In this paper, we derive closed-form solution of option pricing formula when there are restrictions on changes in underlying asset prices. Using numerical examples, we illustrate that very often the impact of such restrictions on option prices is substantial.

Share and Cite:

G. Jiang, G. Pan and L. Shi, "Option Pricing When Changes of the Underlying Asset Prices Are Restricted," Journal of Mathematical Finance, Vol. 1 No. 2, 2011, pp. 28-33. doi: 10.4236/jmf.2011.12004.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] F. Black and M. Scholes, “The Pricing of Options and Corpo-rate Liabilities,” Journal of Political Economy, Vol. 81, No. 3, 1973, pp. 637-654. doi:10.1086/260062U
[2] R. C. Merton, “Theory of Rational Option Pricing,” Bell Journal of Economics, Vol. 4, No. 1, 1973, pp. 141-183. doi:10.2307/3003143
[3] J. C. Hull, “Options, Futures, and Other Derivatives,” 8th Edition, Prentice Hall, Upper Saddle River, 2011.
[4] S. L. Heston, “A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options,” Review of Financial Studies, Vol. 6, No. 2, 1993, pp. 327-343. doi:10.1093/rfs/6.2.327

Copyright © 2024 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.