Pricing Basket Options under Local Stochastic Volatility with Jumps
This paper develops a new approximation formula for pricing basket options in a local-stochastic volatility model with jumps. In particular, the model admits local volatility functions and jump components in not only the underlying asset price processes, but also the volatility processes. To the best of our knowledge, the proposed formula is the first one which achieves an analytical approximation for the basket option prices under this type of the models. Moreover, some numerical experiments confirm the validity of the method.
|Date of creation:||Dec 2013|
|Date of revision:||May 2014|
|Contact details of provider:|| Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033|
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- Kenichiro Shiraya & Akihiko Takahashi, 2014. "Pricing Multiasset Cross‐Currency Options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(1), pages 1-19, 01.
- Akihiko Takahashi & Toshihiro Yamada, 2013. "On an Asymptotic Expansion of Forward-Backward SDEs with a Perturbed Driver," CIRJE F-Series CIRJE-F-902, CIRJE, Faculty of Economics, University of Tokyo.
- Masaaki Fujii & Akihiko Takahashi, 2012. "ANALYTICAL APPROXIMATION FOR NON-LINEAR FBSDEs WITH PERTURBATION SCHEME," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 15(05), pages 1-24.
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