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Worst-Of Call & Put Equity Linked Structures
What processes are reuiqred to price Worst-Of Calls and Worst-Of Puts?The types of structure I am wanting to value are:[1] Worst-Of Put Spread: The payout is equal to the depreciation (if any) of the worst performing of 5 shares (for example)[2] Worst-Of Call: Payout is equal to the positive performance (if any) of the worst performing of 5 shares (for example)
Worst-Of Call & Put Equity Linked Structures
to price this kind of process I would use standard multivariate lognormal processes and apply hte analytical formula ofHerb Johnson in "Option on the maximum or the minimum of Several Assets" . 5 assets is a nice number to deal with analytical formulas.Is it wrong ?
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- Alpentiger
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Worst-Of Call & Put Equity Linked Structures
I use the local-vol-model (LV) to price Worst-of- and Best-Of-Calls/Puts:Compared with Black-Scholes (BS), I see typically the following price relationship:Worst-of-case: LV-price > BS-priceBest-of-case: LV-price < BS-price
Worst-Of Call & Put Equity Linked Structures
Where can you find the paper of Herb Johnson ?Thanks