PT - JOURNAL ARTICLE
AU - Carr, Peter
AU - Maglione, Federico
TI - Compound Option Pricing and the Roll-Geske-Whaley Formula under the Conjugate-Power Dagum Distribution
AID - 10.3905/jod.2022.1.172
DP - 2022 Oct 20
TA - The Journal of Derivatives
PG - jod.2022.1.172
4099 - http://jod.pm-research.com/content/early/2022/10/20/jod.2022.1.172.short
4100 - http://jod.pm-research.com/content/early/2022/10/20/jod.2022.1.172.full
AB - We explore the pricing of compound derivatives under the newly introduced conjugate-power Dagum distribution. Assuming a discrete-time multiplicative conjugate-power Dagum random walk, we first provide an alternative derivation of the price of a married put based on a change of measure, which is helpful for the pricing of compound options. Then, we apply these results to obtain the equivalent of the Roll-Geske-Whaley formula for the pricing of American options in presence of one known discrete dividend under this alternative distribution.