PRICING MULTI-ASSET AMERICAN OPTION WITH STOCHASTIC CORRELATION COEFFICIENT UNDER VARIANCE GAMMA ASSET PRICE DYNAMIC

Farshid Mehrdoust () and Oldouz Samimi
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Farshid Mehrdoust: Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, P. O. Box
Oldouz Samimi: Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, P. O. Box

Annals of Financial Economics (AFE), 2020, vol. 15, issue 04, 1-25

Abstract: This paper considers a class of Levy process namely the variance gamma (VG) process to offer a more realistic way to model the dynamics of the logarithm of stock prices. Then, we verify the uniqueness and existence of the solution to the stochastic differential equation of the model. We also examine the valuation of multi-asset American options under VG model when the correlation coefficient is governed by the modified Ornstein–Uhlenbeck process. Various simulation experiments are presented and the achieved results are tested empirically for option prices using S&P 500 data.

Keywords: Levy process; variance gamma process; Ornstein–Uhlenbeck process; multi-asset American options (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S2010495220500153

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