CIRJE-F-913 | "Pricing Basket Options under Local Stochastic Volatility with Jumps" |
Author Name | Shiraya, Kenichiro and Akihiko Takahashi |
Date | January 2014 |
Full Paper | |
Remarks | Revised in February March, April and May 2014; revised as CIRJE-F-973 (2015). |
Abstract |
This paper develops a new approximation formula for pricing basket options in a local-stochastic volatility model with jumps. In particular, the model admits local volatility functions and jump components in not only the underlying asset price processes, but also the volatility processes. To the best of our knowledge, the proposed formula is the first one which achieves an analytical approximation for the basket option prices under this type of the models. Moreover, some numerical experiments confirm the validity of the method. |