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The Evaluation Of Multiasset European And American Options Via Fourier Hermite Series Expansions

Author

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  • Carl Chiarella, Nadima El-Hassan

    (University of Technology, Sydney)

  • Adam Kucera

    (Institutional Banking,Commonwealth Trading Bank of Australia)

Abstract

We formulate European and American versions of a number of two-factor multiasset options (such as exchange options, quanto options and basket options) in a path integral framework via use of the Chapman-Kolmogorov equation. We show how to evaluate such options using Fourier-Hermite expansions developed in earlier work of the authors [see Chiarella, El-Hassan and Kucera (1999)], focusing in particular on how to handle the different boundary conditions associated with the different pay-off structures. The numerical results are compared for accuracy and speed with those obtained from lattice methods.

Suggested Citation

  • Carl Chiarella, Nadima El-Hassan & Adam Kucera, 2000. "The Evaluation Of Multiasset European And American Options Via Fourier Hermite Series Expansions," Computing in Economics and Finance 2000 287, Society for Computational Economics.
    • Handle: RePEc:sce:scecf0:287
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