Approximate basket option valuation for a simplified jump process |
| |
| Authors: | Dimitris Flamouris Daniel Giamouridis |
| |
| Institution: | 1. ABN Amro Bank, London, United Kingdom;2. Athens University of Economics and Business, Athens, Greece;3. City University in London, United Kingdom |
| |
| Abstract: | This study proposes the use of a simplified jump process, namely the Bernoulli jump process, to develop approximate basket option valuation formulas. The proposed model is based on a more realistic stochastic process—relative to the standard geometric Brownian motion—without introducing additional intractability. Typical approximations, necessary for the development of the closed form formulas, are validated on the basis of a Monte Carlo experiment. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:819–837, 2007 |
| |
| Keywords: | |
|
|
