Baseball Option

Mdublin · October 24th, 2005, 7:17 am

hello, Does anyone knows how are these derivatives priced, or where can i find documentation describing the pricing process?thanks

Mdublin · October 24th, 2005, 3:13 pm

Does anyone has any information on my question below please?thanks

Mdublin · October 24th, 2005, 3:17 pm

would it be possible to use the barrier option model to approximate the value of a baseball option? The question off course is how do you allow (or set a trigger) for the option to hit the barrier 3 times! Any ideas welcome. thanks

Aaron · October 24th, 2005, 4:58 pm

I don't know of a paper describing the pricing, but there probably is one. It depends crucially on the small-scale dynamics of the price near the knock-out barrier. My guess is these are priced by simulation. A recursive analytic solution is probably possible for simple dynamics, but I doubt it would be much good in practice.

Mdublin · December 6th, 2005, 8:48 pm

i could not find anything on the pricing of these options. Are they known with another name? Does anyone know where can i find an article / book that will mention a pricing methodoligy on those? any advice appreciated.

quantie · December 6th, 2005, 9:07 pm

QuoteOriginally posted by: Mdublini could not find anything on the pricing of these options. Are they known with another name? Does anyone know where can i find an article / book that will mention a pricing methodoligy on those? any advice appreciated.from amex's site this is "A barrier option knocked out after the outstrike boundary has been touched for the third time"does touched imply touched from below or could it be from either side?

Mdublin · December 6th, 2005, 9:15 pm

Quantie, I would assume from either side, but i have no more information on these. Assuming that can be touched from either side, would you know any source for more information?Thanks

Mdublin · December 6th, 2005, 9:19 pm

i would also think that the definition implies either side:Baseball Option: A barrier option knocked out after the outstrike boundary has been touched for the third time. The name comes from the baseball phrase three strikes and you're out.

quantie · December 6th, 2005, 10:01 pm

I don't see a problem with usual MC run the path and estimate the third barrier crossing, i presume it is a digital (one or nothing) payoff.?

bluetrin · December 7th, 2005, 12:07 am

QuoteOriginally posted by: quantieI don't see a problem with usual MC run the path and estimate the third barrier crossing, i presume it is a digital (one or nothing) payoff.?Can't see another way than Monte Carlo =/

Mdublin · December 7th, 2005, 10:52 am

Yes this would have a digital payoff. my impression is that trees are used mostly (in practice?) when pricing barrier options.

Cuchulainn · December 7th, 2005, 12:17 pm

QuoteOriginally posted by: MdublinYes this would have a digital payoff. my impression is that trees are used mostly (in practice?) when pricing barrier options.Finite difference, finite element and Meshless as well.