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

Kód výsledku v IS VaVaI

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Výsledek na webu

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DOI - Digital Object Identifier

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Jazyk výsledku

angličtina

Název v původním jazyce

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

Popis výsledku v původním jazyce

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}&apos;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++.

Název v anglickém jazyce

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

Popis výsledku anglicky

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}&apos;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++.

Druh

D - Stať ve sborníku

CEP obor

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OECD FORD obor

10103 - Statistics and probability

Projekt

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Návaznosti

V - Vyzkumna aktivita podporovana z jinych verejnych zdroju

Rok uplatnění

2017

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název statě ve sborníku

MME 2017 Conference Proceedings

ISBN

978-80-7435-678-0

ISSN

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e-ISSN

neuvedeno

Počet stran výsledku

6

Strana od-do

414-419

Název nakladatele

University of Hradec Králové

Místo vydání

Hradec Králové

Místo konání akce

University of Hradec Králové

Datum konání akce

13. 9. 2017

Typ akce podle státní příslušnosti

EUR - Evropská akce

Kód UT WoS článku

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