Pricing Chooser Option

Ming Ding; Jiaxin Liu; Yuching Wu

doi:10.54254/2753-8818/2025.22645

Research Article

Open access

Published on 6 May 2025

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Ding,M.;Liu,J.;Wu,Y. (2025). Pricing Chooser Option. Theoretical and Natural Science,107,220-226.

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Pricing Chooser Option

Ming Ding *^,1, Jiaxin Liu ², Yuching Wu ³

¹ Nottingham University Business School, University of Nottingham, Ningbo, China
² Queen Mary School of Hainan, Beijing University of Posts and Telecommunications Beijing, China
³ The Affiliated International School (YHV) of Shenzhen University Shenzhen, Shenzhen, China

* Author to whom correspondence should be addressed.

https://doi.org/10.54254/2753-8818/2025.22645

Abstract

With the rapid development of financial markets and the increasing diversification of investment instruments and choices, exotic derivatives like the Chooser option have emerged. This special type of option contract grants holders the right to choose whether the option is a put or a call at the selection date. This flexibility facilitates investors' hedging policies and diversification to spread risk and enhance returns. However, pricing it appropriately becomes a difficult task because of its complexity. This paper first aims to price the Chooser option in two ways: the N-period Binomial tree model and the Black-Scholes model combined with Monte Carlo simulations. Then, the results from both approaches are compared and it is found that the outcomes are approximately equivalent when the parameters are held constant. Building on this finding, the computational efficiency of both methods in Python is analyzed, with fixing N (period) at 100. The results indicate that the running time of the Black-Scholes model exceeds that of the N-period Binomial tree model.

Keywords

omponent, Chooser option, Binomial tree model, Black-Scholes model, Monte Carlo

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References

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[10]. The code can be accessed at: https://github.com/Aurora491/chooser-option-BS-and-Binomial.git

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Cite this article

Ding,M.;Liu,J.;Wu,Y. (2025). Pricing Chooser Option. Theoretical and Natural Science,107,220-226.

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The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 4th International Conference on Computing Innovation and Applied Physics

Conference website: https://2025.confciap.org/

ISBN：978-1-80590-087-0(Print) / 978-1-80590-088-7(Online)

Conference date: 17 January 2025

Editor：Ömer Burak İSTANBULLU, Marwan Omar, Anil Fernando

Series: Theoretical and Natural Science

Volume number: Vol.107

ISSN：2753-8818(Print) / 2753-8826(Online)

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