The Premium Reduction of European, American, and Perpetual Log Return Options
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11320%2F21%3A10438230" target="_blank" >RIV/00216208:11320/21:10438230 - isvavai.cz</a>
Result on the web
<a href="https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=z~x1qrLnf0" target="_blank" >https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=z~x1qrLnf0</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.3905/jod.2020.1.115" target="_blank" >10.3905/jod.2020.1.115</a>
Alternative languages
Result language
angličtina
Original language name
The Premium Reduction of European, American, and Perpetual Log Return Options
Original language description
Traditional plain vanilla options may be regarded as contingent claims whose value depends upon the simple returns of an underlying asset. These options have convex payoffs, and as a consequence of Jensen's inequality, their prices increase as a function of maturity in the absence of interest rates. This results in long-dated call option premia being excessively expensive in relation to the fraction of a corresponding insured portfolio. We show that replacing the simple return payoff with the log return call option payoff leads to substantial premium savings while providing the similar insurance protection. Call options on log returns have favorable prices for very long maturities on the scale of decades. This property enables them to be attractive securities for long-term investors, such as pension funds.
Czech name
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Czech description
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Classification
Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
10103 - Statistics and probability
Result continuities
Project
<a href="/en/project/GX19-28231X" target="_blank" >GX19-28231X: DyMoDiF - Dynamic Models for the Digital Finance</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)
Others
Publication year
2021
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Journal of Derivatives
ISSN
1074-1240
e-ISSN
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Volume of the periodical
28
Issue of the periodical within the volume
4
Country of publishing house
US - UNITED STATES
Number of pages
17
Pages from-to
7-23
UT code for WoS article
000658241400001
EID of the result in the Scopus database
2-s2.0-85107859811