A Reduction Method Applicable to Compound Option Formulas

Mark Schroder
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Mark Schroder: Kidder, Peabody and Co., Inc., 20 Exchange Place, New York, New York 10005

Management Science, 1989, vol. 35, issue 7, 823-827

Abstract: Curnow and Dunnett (Curnow, R. N., C. W. Dunnett. 1962. The numerical evaluation of certain multivariate normal integrals. Ann. Math. Statist. 33 571--579.) derive a reduction formula for multivariate normal integrals with a certain type of correlation matrix. This paper presents a more general reduction formula which can reduce substantially the computational cost of high dimension integrals. This method has a number of applications in option pricing theory in finance.

Keywords: American call; American put; computational efficiency; contingent claims; coupon bonds; multinormal (search for similar items in EconPapers)
Date: 1989
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