Pricing Multi-Asset Cross Currency Optionss
This paper develops a general pricing method for multi-asset cross currency options, whose underlying asset consists of multiple different assets, and the evaluation currency is different from the ones used in the most liquid market of each asset; the examples include cross currency options, cross currency basket options and cross currency average options. We also demonstrate that our scheme is able to evaluate options with high dimensional state variables such as 200 dimensions, which is necessary for pricing basket options with 100 underlying assets under stochastic volatility environment. Moreover, in practice, fast calibration is necessary in the option markets relevant for the underlying assets and the currency, which is also achieved in this paper. Furthermore, we investigate the implied correlations in the cross currency markets on the dates before and after the events, Lehman Shock and Tohoku Earthquake .
|Date of creation:||Mar 2012|
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- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Akihiko Takahashi & Nakahiro Yoshida, 2005. "Monte Carlo Simulation with Asymptotic Method," CIRJE F-Series CIRJE-F-335, CIRJE, Faculty of Economics, University of Tokyo.
- Paul Doust, 2012. "The Stochastic Intrinsic Currency Volatility Model: A Consistent Framework for Multiple FX Rates and Their Volatilities," Applied Mathematical Finance, Taylor & Francis Journals, vol. 19(5), pages 381-445, November.
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