ABSTRACT Exchanges often impose daily limits for asset price changes. These restrictions have a direct impact on the prices of options traded on these assets. In this paper, we derive closed-form solution of option pricing formula when there are restrictions on changes in underlying asset prices. Using numerical examples, we illustrate that very often the impact of such restrictions on option prices is substantial.
Cite this paper
nullG. Jiang, G. Pan and L. Shi, "Option Pricing When Changes of the Underlying Asset Prices Are Restricted," Journal of Mathematical Finance, Vol. 1 No. 2, 2011, pp. 28-33. doi: 10.4236/jmf.2011.12004.
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