Option pricing formulas for Modified Log-payoff Function

Journal: International Journal of Mathematics and Soft Computing (Vol.3, No. 3)

Publication Date: 2013-07-10

Authors : H. V. Dedania S. J. Ghevariya;

Page : 129-140

Keywords : BSM Formulas; Log and modified log payoff functions; comparison of BSM formulas.;

Source : Download Find it from : Google Scholar

Abstract

Paul Wilmott derived BSM option pricing formula for the payoff function $textrm{max}{textrm{ln}(frac{S_T}{K}), 0}$. In this article, we derive the BSM option pricing formula for the modified payoff function $linebreak$ $textrm{max}{S_T textrm{ln}(frac{S_T}{K}), 0}$. It turns out that the present BSM formula is quite close to the plain vanilla option pricing formula.

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Option pricing formulas for Modified Log-payoff Function

Abstract

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