Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5077340 | Insurance: Mathematics and Economics | 2010 | 8 Pages |
Abstract
In this paper we discuss the basket options valuation for a jump-diffusion model. The underlying asset prices follow some correlated local volatility diffusion processes with systematic jumps. We derive a forward partial integral differential equation (PIDE) for general stochastic processes and use the asymptotic expansion method to approximate the conditional expectation of the stochastic variance associated with the basket value process. The numerical tests show that the suggested method is fast and accurate in comparison with the Monte Carlo and other methods in most cases.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Guoping Xu, Harry Zheng,