On the closed-form approximation of short-time random strike options

Elisa Alòs () and Jorge A. León
Additional contact information
Elisa Alòs: https://www.upf.edu/web/econ/faculty/-/asset_publisher/6aWmmXf28uXT/persona/id/3418685

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: In this paper we propose a general technique to develop first and second order closed-form approximation formulas for short-time options with random strikes. Our method is based on Malliavin calculus techniques and allows us to obtain simple closed-form approximation formulas depending on the derivative operator. The numerical analysis shows that these formulas are extremely accurate and improve some previous approaches on two-assets and three-assets spread options as Kirk's formula or the decomposition mehod presented in Alòs, Eydeland and Laurence (2011).

Keywords: Spread options; Kirk's formula; Malliavin calculus; derivative operator in the Malliavin calculus sense; Skorohod integral. (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2013-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econ-papers.upf.edu/papers/1347.pdf Whole Paper (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1347

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).