SSRN Author: Peter CarrPeter Carr SSRN Content
https://www.ssrn.com/author=707
https://www.ssrn.com/rss/en-usThu, 24 Mar 2022 01:12:39 GMTeditor@ssrn.com (Editor)Thu, 24 Mar 2022 01:12:39 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0New: Optionality as a Binary OperationIn finance, optionality is a possible property of a financial contract giving the owner a choice between two or more assets. For example, a convertible bond has optionality because its owner must choose between having a bond or having some shares of stock. In mathematics, a binary operation acts on two numbers in a set to produce a third number in that set. When a financial contract such as a convertible bond enjoys optionality between exactly two assets, then the arbitrage-free current value of the contract can potentially be treated as the outcome of a binary operation acting on the two current asset values. In this paper, we treat one of the two assets as riskless and demand that the binary operation linking the two current asset values always produce an arbitrage-free option price. In this context, we focus on the interplay between the properties of the risk-neutral density of the risky asset and the algebraic properties of the binary operation.
https://www.ssrn.com/abstract=4018065
https://www.ssrn.com/2118552.htmlTue, 22 Mar 2022 23:40:05 GMT