Review of Derivatives Research
The game option, which is also known as Israel option, is an American option with callable features. The option holder can exercise the option at any time up to maturity. This article studies the pricing behaviors of the path-dependent game option where the payoff of the option depends on the maximum or minimum asset price over the life of the option (i.e., the game option with the lookback feature). We obtain the explicit pricing formula for the perpetual case and provide the integral expression of pricing formula under the finite horizon case. In addition, we derive optimal exercise strategies and continuation regions of options in both floating and fixed strike cases.
Lookback game options
2010 Third International Conference on Business Intelligence and Financial Engineering
This paper explores whether the regulation of price limits in financial markets will result in the autocorrelation of stock return series. The results of Monte Carlo Experiment under different error term distribution hypothesis suggest that such price limit mechanism will result in a positive first-order autocorrelation of return series. The results indicates that some statistics in empirical finance literature for testing random walk or market efficiency, for example, the variance ratio of Lo and MacKinlay(1988), may be biased when the stock price is subject to the price limit. This paper also suggests that the further research on the price limit is necessary when more exchanges adopt such regulations in the world.
error term distribution hypothesis
Monte Carlo experiment
price limit regulation
random walk testing
stock return series autocorrelation