An Analytically Tractable Model for Pricing Multiasset Options with Correlated Jump-Diffusion Equity Processes and a Two-Factor Stochastic Yield Curve
This paper shows how to value multiasset options analytically in a modeling framework that combines both continuous and discontinuous variations in the underlying equity or foreign exchange processes and a stochastic, two-factor yield curve. All correlations are taken into account, between the facto...
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| Format: | Article |
| Language: | English |
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Hindawi Limited
2016-01-01
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| Series: | Journal of Applied Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2016/8029750 |
| Summary: | This paper shows how to value multiasset options analytically in a modeling framework that combines both continuous and discontinuous variations in the underlying equity or foreign exchange processes and a stochastic, two-factor yield curve. All correlations are taken into account, between the factors driving the yield curve, between fixed income and equity as asset classes, and between the individual equity assets themselves. The valuation method is applied to three of the most popular two-asset options. |
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| ISSN: | 1110-757X 1687-0042 |