Authors: Krzysztof Echaust; Marcin Bartkowiak
Addresses: Department of Operations Research, Poznan University of Economics, Poland ' Department of Applied Mathematics, Poznan University of Economics, Poland
Abstract: Mountain range options are a particular class of multi-asset options for which no closed form formula for valuation exists and Monte Carlo simulation should be used. In this paper, we conducted an analysis of the sensitivity of mountain range options prices to changes in various risk factors, such as correlation coefficients, underlying prices, volatilities, risk-free rate, and time to expiration. We found numbers of non-typical and nonlinear dependencies in options valuation.
Keywords: mountain range options; sensitivity; structured products; Altiplano; Atlas; Everest; Himalaya; Kilimanjaro; options prices; multi-asset options; options valuation; Monte Carlo simulation; risk factors; correlation coefficients; underlying prices; volatility; risk-free rate; time to expiration.
International Journal of Bonds and Derivatives, 2016 Vol.2 No.2, pp.87 - 107
Received: 20 May 2015
Accepted: 23 Jul 2015
Published online: 19 Jun 2016 *