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Efficient pricing and calibration of high-dimensional basket options.
- Source :
-
International Journal of Computer Mathematics . Sep2023, p1-24. 24p. 11 Illustrations, 9 Charts. - Publication Year :
- 2023
-
Abstract
- This paper studies equity basket options – i.e. multi-dimensional derivatives whose payoffs depend on the value of a weighted sum of the underlying stocks – and develops a new and innovative approach to ensure consistency between options on individual stocks and the index comprising them. Specifically, we show how to resolve a well-known problem that when individual constituent distributions of an equity index are inferred from the single-stock option markets and combined in a multi-dimensional local/stochastic volatility model, the resulting basket option prices will not generate a skew matching that of the options on the equity index corresponding to the basket. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 00207160
- Database :
- Academic Search Index
- Journal :
- International Journal of Computer Mathematics
- Publication Type :
- Academic Journal
- Accession number :
- 172435681
- Full Text :
- https://doi.org/10.1080/00207160.2023.2266051