Discrete Fader Call Option Price

Posted by Chun-Yuan Chiu

Input:
Initial underlying asset price
Strike price
Time to maturity Years
Number of partition
Lower limit of the range (L)
Upper limit of the range (H)
Risk free interest rate (annulized)
Volatility (annulized)
Option type
Output:
Call value

Derivation:

Derivation of Pricing Formulae for Fader Options under the Black-Scholes Model

Every time the underlying is observed in a predetermined interval [L, H], a proportion of the payoff of a fade-in option is accumulated. In contrast, every time the underlying is observed not in the interval, a proportion of the payoff of a fade-out option is decreased. The calculation is based on the Black-Sholes model.

Tagged: Fader Option, Black-Scholes Model

 •  Jul 27, 2014  • 

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