Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 484: On the Use of Numeraires in Option pricing

Simon Benninga (), Tomas Björk () and Zvi Wiener ()
Additional contact information
Simon Benninga: Faculty of Management, Tel Aviv University, Postal: Israel
Tomas Björk: Dept. of Finance, Stockholm School of Economics, Postal: Sweden
Zvi Wiener: School of Business, Hebrew University of Jerusalem, Postal: Israel

Abstract: In this paper we discuss the significant computational simplification that occurs when option pricing is approached through the change of numeraire technique. The original impetus was a recently published paper (Hoang, Powell, Shi 1999) on endowment options; in the present paper we extend these results to the case of stochastic interest rates. We also discuss four additional option pricing problems within the framework of a change of numeraire: 1. Pricing savings plans which incorporate a choice of linkage. 2. Pricing convertible bonds. 3. Pricing employee stock ownership plans 4. Pricing options where the strike price is in a currency different from the stock price.

Keywords: Numeraire; option; convertible bond

JEL-codes: G12; G13

25 pages, January 3, 2002

Note: submitted

Full text files

hastef0484.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-03-27 10:24:52.