Assistant Professor, Cornell University. This research paper was completed while I was a doctoral student at the Anderson Graduate School of Management, University of California, Los Angeles. I would like to thank Warren Bailey, Jim Brandon, Michael Brennan, Tom Copeland, Dan Galai, Bob Geske, Mark Grinblatt, David Hirshleifer, Eduardo Schwartz, Erik Sirri, Sheridan Titman, Walt Torous, and an anonymous referee for their comments. These individuals are not responsible for any errors. Financial support was provided by a fellowship from the Social Sciences and Humanities Research Council of Canada, a John M. Olin Fellowship, and an Allstate Insurance Dissertation Fellowship.
The Valuation of Sequential Exchange Opportunities
Article first published online: 30 APR 2012
1988 The American Finance Association
The Journal of Finance
Volume 43, Issue 5, pages 1235–1256, December 1988
How to Cite
CARR, P. (1988), The Valuation of Sequential Exchange Opportunities. The Journal of Finance, 43: 1235–1256. doi: 10.1111/j.1540-6261.1988.tb03967.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
Sequential exchange opportunities are valued using the techniques of modern option-pricing theory. The vehicle for analysis is the concept of a compound exchange option. This security is shown to exist implicitly in several contractual settings. A valuation formula for this option is derived. The formula is shown to generalize much previous work in option pricing. Several applications of the formula are presented.