Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5077199 | Insurance: Mathematics and Economics | 2009 | 8 Pages |
Abstract
This paper uses a multivariate normal inverse Gaussian model to develop closed-form pricing formulas for both geometric and arithmetic basket options. For geometric basket options, an exact analytical solution is possible; for arithmetic basket options, the formula is an approximation. The model is based on a jump-driven financial process, which is known empirically to be more realistic than a geometric Brownian motion. By comparing our results to Monte Carlo experiments, we confirm the internal consistency of our formulas. The “Greeks” can be derived from the closed-form formulas in a straightforward manner.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Yang-Che Wu, Szu-Lang Liao, So-De Shyu,