Article ID Journal Published Year Pages File Type
476084 Computers & Operations Research 2008 14 Pages PDF
Abstract

This study presents a simple but powerful approximation approach that is both accurate and computationally efficient for valuing basket options on multiple assets with mean-reverting prices. It accomplishes this by solving technical problems involved in reducing the dimensionality of basket options. The approach is readily applicable to multi-factor situations where traditional techniques do not work and contributes to the fields of option pricing, computational finance, and energy industry risk management. Numerical examples, including applications to the energy commodity market, illustrate the computational efficiency and accuracy of the approach when compared with results from Monte Carlo (MC) simulations and extant methods in the literature.

Related Topics
Physical Sciences and Engineering Computer Science Computer Science (General)
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