DG Approach to Numerical Pricing of Local Volatility Basket Options

Kód výsledku v IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F16%3A86099799" target="_blank" >RIV/61989100:27510/16:86099799 - isvavai.cz</a>

Nalezeny alternativní kódy

RIV/46747885:24510/16:00004013

Výsledek na webu

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DOI - Digital Object Identifier

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Jazyk výsledku

angličtina

Název v původním jazyce

DG Approach to Numerical Pricing of Local Volatility Basket Options

Popis výsledku v původním jazyce

The problem of determining the fair price of an option is a delicate issue arising from the assumptions made under a market model and the evaluation of such option prices is often relied only on approximations obtained by numerical schemes. It is well known that commonly used Black-Scholes type models can not capture all real market features. Therefore, one way to make these models suitable for real world pricing issues is to relax some of the model assumptions. In this paper we present one of the basket option models that try to remain consistent with the volatility smile. These multi-factor local volatility models incorporate the volatility as a function of maturity and moneyness into the pricing procedure. The presented numerical approach arises from the concept of the discontinuous Galerkin method and enables better resolving of occurred special properties of solutions of such types of options. Finally, the resulting schemes are demonstrated on practical experiments with real data.

Název v anglickém jazyce

DG Approach to Numerical Pricing of Local Volatility Basket Options

Popis výsledku anglicky

The problem of determining the fair price of an option is a delicate issue arising from the assumptions made under a market model and the evaluation of such option prices is often relied only on approximations obtained by numerical schemes. It is well known that commonly used Black-Scholes type models can not capture all real market features. Therefore, one way to make these models suitable for real world pricing issues is to relax some of the model assumptions. In this paper we present one of the basket option models that try to remain consistent with the volatility smile. These multi-factor local volatility models incorporate the volatility as a function of maturity and moneyness into the pricing procedure. The presented numerical approach arises from the concept of the discontinuous Galerkin method and enables better resolving of occurred special properties of solutions of such types of options. Finally, the resulting schemes are demonstrated on practical experiments with real data.

Druh

D - Stať ve sborníku

CEP obor

BB - Aplikovaná statistika, operační výzkum

OECD FORD obor

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Projekt

<a href="/cs/project/GA16-09541S" target="_blank" >GA16-09541S: Robustní numerická schémata pro oceňování vybraných opcí za různých tržních podmínek</a><br>

Návaznosti

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Rok uplatnění

2016

Kód důvěrnosti údajů

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

Název statě ve sborníku

34th International Conference Mathematical Methods in Economics (MME) : proceedings papers

ISBN

978-80-7494-296-9

ISSN

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e-ISSN

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Počet stran výsledku

6

Strana od-do

307-312

Název nakladatele

Technická univerzita Liberec

Místo vydání

Liberec

Místo konání akce

Liberec

Datum konání akce

6. 9. 2016

Typ akce podle státní příslušnosti

EUR - Evropská akce

Kód UT WoS článku

000385239500053