Approximate basket option valuation for a simplified jump process

Dimitris Flamouris and Daniel Giamouridis

Journal of Futures Markets, 2007, vol. 27, issue 9, 819-837

Abstract: This study proposes the use of a simplified jump process, namely the Bernoulli jump process, to develop approximate basket option valuation formulas. The proposed model is based on a more realistic stochastic process—relative to the standard geometric Brownian motion—without introducing additional intractability. Typical approximations, necessary for the development of the closed form formulas, are validated on the basis of a Monte Carlo experiment. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:819–837, 2007

Date: 2007
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