Approximate basket options valuation for a jump-diffusion model

Guoping Xu and Harry Zheng

Insurance: Mathematics and Economics, 2009, vol. 45, issue 2, 188-194

Abstract: In this paper we discuss the approximate basket options valuation for a jump-diffusion model. The underlying asset prices follow some correlated diffusion processes with idiosyncratic and systematic jumps. We suggest a new approximate pricing formula which is the weighted sum of Roger and Shi's lower bound and the conditional second moment adjustments. We show that the approximate value is always within the lower and upper bounds of the option and is very sharp in our numerical tests.

Keywords: IM12; IM20; Basket; option; pricing; Jump-diffusion; model; Analytic; approximation; Conditional; moment; matching (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:45:y:2009:i:2:p:188-194

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