Pricing of European Basket Call Option under Exponential Ornstein-Uhlenbeck Process

Jingwei Liu, Jiwen Luo and Xing Chen

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Abstract: Pricing of European basket call option with n-assets and a bond is discussed in this paper, where all prices of n-assets and the bond are driven by Exponential Ornstein-Uhlenbeck processes. The close-form of European basket option pricing formula is derived. Utilizing with 1-order differential approximate numerical solution of stochastic differential equation (Milstein method), a simulation example of European basket option pricing with 3 assets is also given.

Date: 2014-10, Revised 2015-06
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