Approximate-Analytical solution to the information measure’s based quanto option pricing model

Luckshay Batra and H.C. Taneja

Chaos, Solitons & Fractals, 2021, vol. 153, issue P1

Abstract: In this paper, we derive risk-neutral density functions of multi-asset to model the price of European options by incorporating a simple constrained minimization of the Kullback measure of relative information. Based on the theoretical analysis, when the underlying financial asset price follows a geometric Brownian motion, we obtain a two-dimensional quanto-option Black-Scholes equation. In addition, to evaluate the explicit solution of this multi-asset option pricing model, we design a Liouville-Caputo time-fractional derivative and use the Laplace homotopy perturbation method to obtain the explicit scheme in the form of convergent series under suitable regularity conditions.

Keywords: Quanto option pricing model; Black-Scholes equation; Kullback relative information; Laplace homotopy perturbation method; Liouville-Caputo fractional derivative (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:153:y:2021:i:p1:s096007792100847x

DOI: 10.1016/j.chaos.2021.111493

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