In Foreign Exchange Markets Compound options (options on options) are traded frequently. Instalment options generalize the concept of Compound options as they allow the holder to prolong a Vanilla Call or Put option by paying instalments of a discrete payment plan. We derive a closed-form solution to the value of such an option in the Black-Scholes model and prove that the limiting case of an Instalment option with a continuous payment plan is equivalent to a portfolio consisting of a European Vanilla option and an American Put on this Vanilla option with a time-dependent strike. © 2008 Springer-Verlag Berlin Heidelberg.
CITATION STYLE
Griebsch, S., Kühn, C., & Wystup, U. (2008). Instalment options: A closed-form solution and the limiting case. In Mathematical Control Theory and Finance (pp. 211–229). Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-540-69532-5_12
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