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The Impact of Changes in Time to Maturity on the Risk of Geometric Options

  • Ewa DziawgoEmail author
Conference paper
Part of the Eurasian Studies in Business and Economics book series (EBES, volume 11/1)

Abstract

Asian geometric options are path-dependent exotic options whose pay-off function is based on the geometric average price of the underlying instrument in the past (in a fixed period, leading up to the expiration date). This paper presents the issues connected with the geometric option: the instrument’s structure, types options, pay-off function, the pricing model, the effect of time to maturity and the price of underlying instrument on the option price and the value coefficients: delta, gamma, vega, theta, rho. These coefficients are the sensitivity measures. The sensitivity measures are important in managing the options risk. They indicate the influence the change in the option price for a change in the value of a risk factor. The objective of this paper is to present the effect of time to maturity on the price and the values of the risk measures (coefficients: delta, gamma, vega, theta, rho). The empirical illustrations included in the paper are presented based on a simulation of valuations of currency geometric call options (on the EUR/USD).

Keywords

Financial instruments Risk management Measures of risk 

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Faculty of Administration and Social SciencesKazimierz Wielki UniversityBydgoszczPoland

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