Finite maturity margin call stock loans

Xiaoping Lu; Endah R.M. Putri

doi:10.1016/j.orl.2015.10.007

Finite maturity margin call stock loans

Xiaoping Lu^*, Endah R.M. Putri

^*Corresponding author for this work

University of Wollongong

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

Abstract

In this paper, we formulate margin call stock loans in finite maturity as American down-and-out calls with rebate and time-dependent strike. The option problem is solved semi-analytically based on the approach in Zhu (2006). An explicit equation for optimal exit price and a pricing formula for loan value are obtained in Laplace space. Final results are obtained by numerical inversion. Examples are provided to show the dependency of the optimal exit price and margin call stock loan value on various parameters.

Original language	English
Pages (from-to)	12-18
Number of pages	7
Journal	Operations Research Letters
Volume	44
Issue number	1
DOIs	https://doi.org/10.1016/j.orl.2015.10.007
Publication status	Published - 1 Jan 2016
Externally published	Yes

Keywords

American down-and-out call with rebate
Laplace transform method
Margin call stock loan

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10.1016/j.orl.2015.10.007

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abstract = "In this paper, we formulate margin call stock loans in finite maturity as American down-and-out calls with rebate and time-dependent strike. The option problem is solved semi-analytically based on the approach in Zhu (2006). An explicit equation for optimal exit price and a pricing formula for loan value are obtained in Laplace space. Final results are obtained by numerical inversion. Examples are provided to show the dependency of the optimal exit price and margin call stock loan value on various parameters.",

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AB - In this paper, we formulate margin call stock loans in finite maturity as American down-and-out calls with rebate and time-dependent strike. The option problem is solved semi-analytically based on the approach in Zhu (2006). An explicit equation for optimal exit price and a pricing formula for loan value are obtained in Laplace space. Final results are obtained by numerical inversion. Examples are provided to show the dependency of the optimal exit price and margin call stock loan value on various parameters.

KW - American down-and-out call with rebate

KW - Laplace transform method

KW - Margin call stock loan

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Finite maturity margin call stock loans

Abstract

Keywords

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