Basket Options Pricing for Jump Diffusion Models

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Title: Basket Options Pricing for Jump Diffusion Models
Authors: Xu, Guoping
Item Type: Thesis or dissertation
Abstract: In this thesis we discuss basket option valuation for jump-diffusion models. We suggest three new approximate pricing methods. The first approximation method is the weighted sum of Rogers and Shi’s lower bound and the conditional second moment adjustments. The second is the asymptotic expansion to approximate the conditional expectation of the stochastic variance associated with the basket value process. The third is the lower bound approximation which is based on the combination of the asymptotic expansion method and Rogers and Shi’s lower bound. We also derive a forward partial integro-differential equation (PIDE) for general asset price processes with stochastic volatilities and stochastic jump compensators. Numerical tests show that the suggested methods are fast and accurate in comparison with Monte Carlo and other methods in most cases.
Issue Date: Oct-2010
Date Awarded: Feb-2011
Supervisor: Zheng, Harry
Sponsor/Funder: Citi Risk Analytics
Author: Xu, Guoping
Department: Mathematics
Publisher: Imperial College London
Qualification Level: Doctoral
Qualification Name: Doctor of Philosophy (PhD)
Appears in Collections:Mathematics PhD theses

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