The pricing of European options on two underlying assets with delays

Lisha Lin, Yaqiong Li and Jing Wu

Physica A: Statistical Mechanics and its Applications, 2018, vol. 495, issue C, 143-151

Abstract: In the paper, the pricing of European options on two underlying assets with delays is discussed. By using the approach of equivalent martingale measure transformation, the market is proved to be complete. With exchange option as a particular example, we obtain the explicit pricing formula in a subinterval of option period. The robust Euler–Maruyama method is combined with the Monte Carlo simulation to compute exchange option prices within the whole option period. Numerical experiments indicate that there is an increasing possibility of the difference between the delayed and Black–Scholes option prices with the increase of delay.

Keywords: Option pricing; Multiple underlying assets; Delay; Martingale; Euler–Maruyama approximation (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:495:y:2018:i:c:p:143-151

DOI: 10.1016/j.physa.2017.12.031

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