Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 137:
Stock Options as Barrier Contingent Claims

Jan Ericsson () and Joel Reneby ()

Abstract: This paper contributes in two ways. First it extends the Geske (1979) compound option pricing model to the case where the underlying call is a down-and-out claim. Second it provides an internally consistent frame-work for valuing options on general corporate securities. Numerical results suggest that the detailed characteristics of the underlying capital structure (such as coupons, principal and maturities) may substantially influence the pricing of options.

Keywords: Compound barrier contingent claims; option pricing; (follow links to similar papers)

JEL-Codes: G13; (follow links to similar papers)

38 pages, November 1996, Revised September 2002

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This paper is published as:
Ericsson, Jan and Joel Reneby, (2003), 'Stock Options as Barrier Contingent Claims', Applied Mathematical Finance, pages 121-147

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