Pricing Extendible Options in Excel

This article introduces extendible options, and provides pricing free spreadsheets. Extendible options are a type of compound option and allow the life of the option to be extended beyond the original maturity date.

A holder-extendible option can be extended by the holder. However, the holder must pay a premium for the privilege.

A writer-extendible option can be extended by the writer (i.e. the issuing organization).  In this case, a premium is not paid by the writer to the holder.  Only out-of-the-money options are often automatically extended at maturity.

Both forms have two strike prices.

Writer Extendible Options and Holder Extendible Options

Longstaff (1990) derives closed-form expressions to price both variants.

Download Excel Spreadsheets to Price Writer Extendible and Holder Extendible Options


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