A Generalization of Gray and Whaley's Option

Options markets display interesting features. Most options are executed when they are near the money. However, the underlying asset price varies significantly during the life-time option. It is therefore difficult to predict the future option position. In order to make options' markets more liquid, the paper proposes to replace all options into At-the-Money (ATM) ones by resetting the strike price X to the asset price at pre-specified time point t, before maturity time T. Strike price is locked in at the then underlying asset price S_{t} regardless whether it is above or below S_{t}.The reset condition is in exchange for deposit in the Clearing House. The idea is to provide a general valuation of reset option of Gray and Whaley (1999) in which reset condition does not depend on the relation between the strike price and the underlying asset price. The contribution of this paper is double. First, it shows that our general model option, under specific conditions, can be generalized to the most common ones like for example Black-Scholes-Merton, forward-start and strike reset pricing formulae etc... Second, in line with Haug and Haug (2001), we use the CRR binominal approach (Cox et al., 1979) and an estimation program of the cumulative bivariate normal distribution to provide closed-form solution for the pricing of the generalized European reset option

A Generalization of Gray and Whaley's Option

Options markets display interesting features. Most options are executed when they are near the money. However, the underlying asset price varies significantly during the life-time option. It is therefore difficult to predict the future option position. In order to make options' markets more liquid, the paper proposes to replace all options into At-the-Money (ATM) ones by resetting the strike price X to the asset price at pre-specified time point t, before maturity time T. Strike price is locked in at the then underlying asset price S_{t} regardless whether it is above or below S_{t}.The reset condition is in exchange for deposit in the Clearing House. The idea is to provide a general valuation of reset option of Gray and Whaley (1999) in which reset condition does not depend on the relation between the strike price and the underlying asset price. The contribution of this paper is double. First, it shows that our general model option, under specific conditions, can be generalized to the most common ones like for example Black-Scholes-Merton, forward-start and strike reset pricing formulae etc... Second, in line with Haug and Haug (2001), we use the CRR binominal approach (Cox et al., 1979) and an estimation program of the cumulative bivariate normal distribution to provide closed-form solution for the pricing of the generalized European reset option

On the liquidity of CAC 40 index options Market

Daily data available between May 2005 and August 2012 show the presence of a considerable number of outstanding PXA contracts that have not expired and been offset by taking or making delivery. The current paper concludes that CAC 40 index options displays some illiquidity problems, particularly long term maturity options that are deep out or in the money. To enhance liquidity, we test the generalized reset GR option of François-Heude and Yousfi (2013) in the PXA options' market. Our preliminary results show a significant and positive effect on the liquidity of PXA options in several ways

A Generalization of Gray and Whaley's Option

Options markets display interesting features. Most options are executed when they are near the money. However, the underlying asset price varies significantly during the life-time option. It is therefore difficult to predict the future option position. In order to make options' markets more liquid, the paper proposes to replace all options into At-the-Money (ATM) ones by resetting the strike price X to the asset price at pre-specified time point t, before maturity time T. Strike price is locked in at the then underlying asset price S_{t} regardless whether it is above or below S_{t}.The reset condition is in exchange for deposit in the Clearing House. The idea is to provide a general valuation of reset option of Gray and Whaley (1999) in which reset condition does not depend on the relation between the strike price and the underlying asset price. The contribution of this paper is double. First, it shows that our general model option, under specific conditions, can be generalized to the most common ones like for example Black-Scholes-Merton, forward-start and strike reset pricing formulae etc... Second, in line with Haug and Haug (2001), we use the CRR binominal approach (Cox et al., 1979) and an estimation program of the cumulative bivariate normal distribution to provide closed-form solution for the pricing of the generalized European reset option

How to improve the liquidity of CAC 40 index options?

International audienc

On the liquidity of CAC 40 index options market

International audienceThe current article shows that CAC 40 index options (namely PXA) display some illiquidity problems. We examine daily data on PXA trades between May 2005 and August 2012. The study evidences the presence of a considerable number of outstanding PXA contracts; most of these options are long-term maturity options and are deep in or deep out the money options. To overcome the highlighted liquidity issues, we propose first to test the generalization of Gray and Whaley reset option introduced by François-Heude and Yousfi. The main idea is to reset the strike price PXA option to a new strike price given by the CAC 40 value at a pre-agreed point of time. Then we provide some additional measures regarding the number of the PXA strike price series and the PXA expiration dates. Finally, we test them on PXA market. Results show a significant and positive effect on the PXA liquidity

A generalization of Gray and Whaley’s reset option

International audienceUnderlying asset price varies significantly during the life-time option. In order to make options’ markets more liquid, the article proposes a general valuation of reset option of Gray and Whaley in which all options are replaced by At-the-Money ones by resetting the strike price X at the underlying asset price S t at pre-specified reset date t, before expiration reset maturity T. First, the article proposes a closed-form solution for the pricing of the generalization of Gray and Whaley’s reset option. Second, we use the CRR binomial approach and an estimation program of the cumulative bivariate normal distribution to derive an analytic representation of the price function of GR option

How to improve the liquidity of CAC 40 index options?

International audienc