Pricing and Hedging Basket Options Under Shifted Asymmetric Jump-Diffusion Processes

Tommaso Paletta (), Arturo Leccadito () and Radu Tunaru ()
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Tommaso Paletta: University of Kent, Business School
Arturo Leccadito: Università della Calabria, Dipartimento di Economia, Statistica e Finanza
Radu Tunaru: University of Kent, Business School

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2014, pp 167-171 from Springer

Abstract: Abstract The empirical characteristics of the underlying asset prices should be taken into account for the pricing and hedging of options. In this paper, we show how to price basket options when assets follow the “shifted asymmetric jump-diffusion” process. The methodology is based on the Hermite polynomial expansion that can match exactly the first m moments of the model implied-probability distribution. The resultant pricing and hedging formulae are in closed-form and similar to the Black and Scholes ones.

Keywords: Basket options; Shifted asymmetric jump-diffusion; Hermite polynomials; Option pricing and hedging (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-05014-0_38

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DOI: 10.1007/978-3-319-05014-0_38

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