Pricing Power Options in the Black-Scholes Model
Pricing Power Options in the Black-Scholes Model
Power options are a class of exotic options in which the payoff at expiry is related to the power of the stock price, where . For a power option on a stock with price having strike price and time to expiry , the payoff is for a call, and for a put. Within the Black–Scholes model, closed-form solutions exist for the price of power options. In this Demonstration, prices as a function of the various parameters are explored.
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