article

Martino Grasselli and Alessandro Gnoatto and Gianluca Fusai and Ruggero Caldana


Finance Group (2015) : General Closed-From Basket Option Pricing Bounds




General Closed-From Basket Option Pricing Bounds

Martino Grasselli and Alessandro Gnoatto and Gianluca Fusai and Ruggero Caldana




article

Quantitative Finance

This article presents lower and upper bounds on the prices of basket options for a general class of continuous-time financial models. The techniques we propose are applicable whenever the joint characteristic function of the vector of log-returns is known in closed-form. Moreover, the basket value is not required to be positive. We test our new bounds on different multivariate models, allowing for jumps and stochastic volatility. Numerical examples are discussed and benchmarked against Monte Carlo simulations. All bounds are general and do not require any additional assumption on the characteristic function, so our methods may be employed also to non-affine models. All bounds involve the computation of one-dimensional Fourier transforms, hence they do not suffer from the curse of dimensionality. In particular, our new lower bound turns out to be fast and accurate.

To cite this publication :


Jan Baldeaux, Martino Grasselli, Eckhard Platen: Pricing currency derivatives under the benchmark approach. Dans: Journal of Banking and Finance, 53 , p. 34-48, 2015, ISSN: 0378-4266.





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