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Compound Options Pricing
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A compound option is an option to buy (call) or sell (put) a standard European option. There are four types of compound - call on a call, call on a put, put on a call, and put on a put.
There are two strikes for a compound option; one for the price at which the holder can buy/sell the underlying option and another for the price at which the underlying option holder can buy/seel the actual asset.
Similarly there are two Maturity Dates (the option and the underlying options maturities) and two Volatilities (one for the underlying option and one for the asset which underlies that option).
Other inputs to the model are the same as for standard European options and can be found at black scholes inputs .
DerivativeOne features a free valuation model for pricing all forms of Compound Options
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