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Multi-asset options

Multi-asset options. Pricing model. Ito lemma. Continuous dividend case. American style. Exchange option. similarity reduction. Reduced model. Closed form solution. Other examples. Options on many underlying. Ito Lemma. Quanto options. Binomial model.

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Multi-asset options

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  1. Multi-asset options

  2. Pricing model

  3. Ito lemma

  4. Continuous dividend case

  5. American style

  6. Exchange option

  7. similarity reduction

  8. Reduced model

  9. Closed form solution

  10. Other examples

  11. Options on many underlying

  12. Ito Lemma

  13. Quanto options

  14. Binomial model

  15. Determination of p1,p2,p3,p4 see Kwok (1998) [pp 207-208]

  16. Monte-Carlo Simulation Monte-Carlo simulation is based on the risk-neutral valuation result. The expected payoff in a risk-neutral world is calculated using a sampling procedure. It is then discounted at the risk-free interest rate.

  17. 1. Sample a random path for in a risk-neutral world. 2. Calculate the payoff from the derivative. 3. Repeat steps one and two to get many sample values of the payoff from the derivative in a risk-neutral world. 4. Calculate the mean of the sample payoffs to get an estimate of the expected payoff in a risk-neutral world. 5. Discount the expected payoff at the risk-free rate to get an estimate of the value of the derivative.

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