Sarina Shrestha

Professor Leslie Cheng

Mathematics

Valuation of Exotic Options

This summer I will be researching on quantitative financial mathematics about valuation of options, specifically exotic options under Professor Leslie Cheng. Option is the right, not obligation, to trade any particular financial asset in the future at a previously agreed price-strike price (Wilmott, 28). Exotic options, unlike vanilla options such as American option and European option, are harder to price.

One of the exotic options I am looking into is valuation of Asian option. Asian option have a payoff on the average value of the underlying asset over some period before expiry (Wilmott, 265). The mathematical model used to find fair price of Asian option is Monte Carlo simulation. So, I will be working with Monte Carlo option pricing as well. If time permits, I will also be looking into other exotic options such as compound options and barrier options.

I will also be working with finding fair price of options of two different stocks over a period of time. This will allow me to utilize the theory of valuation of options in real life scenario.