It is a commonly held belief that markets tend to both over-react and under-react to the arrival of good or bad news. Market confidence can drive up values of stocks, and market fear can lead to large negative dips in stock value.
This thesis consists of four papers and a summary. The common topic of the included papers are the pricing equations of path-dependent options. Various properties of barrier options and American options are studied, such as convexity of option prices, the size of
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