Pricing of arithmetic basket options by conditioning
Determining the price of a basket option is not a trivial task, because there is no explicit analytical expression available for the distribution of the weighted sum of prices of the assets in the basket. However, by using a conditioning variable, this price can be decomposed in two parts, one of wh...
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| Veröffentlicht in: | Insurance, mathematics & economics mathematics & economics, 2004-02, Vol.34 (1), p.55-77 |
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| container_title | Insurance, mathematics & economics |
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| creator | Deelstra, G. Liinev, J. Vanmaele, M. |
| description | Determining the price of a basket option is not a trivial task, because there is no explicit analytical expression available for the distribution of the weighted sum of prices of the assets in the basket. However, by using a conditioning variable, this price can be decomposed in two parts, one of which can be computed exactly. For the remaining part we first derive a lower and an upper bound based on comonotonicity, and another upper bound equal to that lower bound plus an error term. Secondly, we derive an approximation by applying some moment matching method. |
| doi_str_mv | 10.1016/j.insmatheco.2003.11.002 |
| format | Article |
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| ispartof | Insurance, mathematics & economics, 2004-02, Vol.34 (1), p.55-77 |
| issn | 0167-6687 1873-5959 |
| language | eng |
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| source | RePEc; ScienceDirect Journals (5 years ago - present) |
| subjects | Analytical bounds Asian basket option Basket option Black and Scholes model Comonotonicity Economic theory Economics Insurance Mathematical models Model testing Moment matching Price theory Prices Pricing Studies Variables |
| title | Pricing of arithmetic basket options by conditioning |
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