Correlation Structure of Underlying Assets Affecting Multi-Asset European Option Price

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F49777513%3A23510%2F17%3A43932773" target="_blank" >RIV/49777513:23510/17:43932773 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Result language
angličtina
Original language name
Correlation Structure of Underlying Assets Affecting Multi-Asset European Option Price
Original language description
The paper deals with formulation of multi-asset European put option pricing problems assuming spot prices of underlying asset to follow geometric Brownian motion with correlation structure. Using traditional approach based on self-financing portfolio and application of It^{o}'s formula to option price, we get resulting partial differential equation describing the evolution of option price in space and time. The payoff function can take various form, two basic ones are presented in particular. Further, we discuss general concept which generates a set of low-dimensional initial-boundary value problems after time reversing substitution has been applied to original terminal-value problem. Numerical solution is focused on two-dimensional basket European put option problem. First, the problem is recast to variational formulation providing convenient platform for application of finite element method. Next, we present results of several numerical experiments to analyze influence of correlation structure of underlying assets upon option price. All calculations are performed by open source sw package FreeFem++.
Czech name
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Czech description
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Publication year
2017
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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