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http://hdl.handle.net/10071/12318
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Title: In-out parity relations for American-style barrier options
Authors: Ruas, J. P.
Nunes, J. P. V.
Dias, J. C.
Issue Date: 2016
Publisher: Institutional Investor, Inc
Abstract: The classic in-out parity relation establishes that the sum of European-style knock-in and knock-out barrier option prices is equal to the price of a standard European-style option. In the literature, however, it is commonly argued that such a barrier parity relationship cannot be applied to American-style barrier options. In this article, we derive novel in-out parity relations for American-style single-barrier options and show that the missing link between knock-in, knock-out, and standard options is simply the value of a non-deferrable rebate. Our results are tested through an extensive numerical analysis run under both the geometric Brownian motion and constant elasticity of variance architecture modeling setups.
Peer reviewed: yes
URI: http://hdl.handle.net/10071/12318
DOI: 10.3905/jod.2016.23.4.020
ISSN: 1074-1240
Ciência-IUL: https://ciencia.iscte-iul.pt/id/ci-pub-29294
Accession number: WOS:000377134800002
Appears in Collections:BRU-RI - Artigos em revistas científicas internacionais com arbitragem científica

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