DescriptionEuropean call and put options are called vanilla (or plain vanilla) options. Their payoffs depend on the final value of the underlying stock price. Options whose payoff depend on the path of the underlying asset are called exotic options. This include, for example, chooser options, binary options, barriar options, lookback options, Asian options, and Russian options. The purpose of this project is to discuss pricing problems of barriar options, lookback options, and asian options. In each case we will derive the corresponding partial differential equation that govern the option price by using the ito's formula. The partial differential equations that correspond to barriar and lookback options can be solved in closed form and the prices of these options can be found. The solution to the partial differential equation governing the price functions of asian options is not known. However, for asian options we use the change-of-numeraire argument that reduces the partial differential equation to a simple form that can be solved numerically.PrerequisitesMATH 2151/2161. Mathematical Finance MATH4181 is prefered.Resourcesemail: H.Sayit |