Compound Option Pricing and the Roll-Geske-Whaley Formula Under the Conjugate-Power Dagum Distribution
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. Joint work with Peter Carr (forthcoming in the Journal of Derivatives).
Federico Maglione is currently a Research Fellow of the Quantitative Finance Research Group at Scuola Normale Superiore, Pisa, Italy. His main research interests are asset pricing, derivative pricing, credit risk, and risk management. He holds a Ph.D. in Finance from Bayes Business School, City, University of London. During his Ph.D., he worked on the use of compound options for credit risk modelling.