In this paper, we consider the problem of pricing a spread option when the underlying assets follow a bivariate regime-switching jump diffusion model. We exploit an approximation technique which is based on the univariate Fourier transform representation of the option price. The method proves to be computationally very effective with respect to benchmark Monte Carlo estimators and permits the use of several kinds of jump models other than the standard Gaussian setting. As a by-product, the exact price of an Exchange Option may be efficiently computed within this framework.
Ramponi, A. (2022). Spread Option Pricing in Regime-Switching Jump Diffusion Models. MATHEMATICS, 10(9), 1574 [10.3390/math10091574].
Spread Option Pricing in Regime-Switching Jump Diffusion Models
Ramponi A.
2022-01-01
Abstract
In this paper, we consider the problem of pricing a spread option when the underlying assets follow a bivariate regime-switching jump diffusion model. We exploit an approximation technique which is based on the univariate Fourier transform representation of the option price. The method proves to be computationally very effective with respect to benchmark Monte Carlo estimators and permits the use of several kinds of jump models other than the standard Gaussian setting. As a by-product, the exact price of an Exchange Option may be efficiently computed within this framework.File | Dimensione | Formato | |
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