Finite difference method for basket option pricing under Merton model
سال انتشار: 1400
نوع سند: مقاله ژورنالی
زبان: انگلیسی
مشاهده: 421
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شناسه ملی سند علمی:
JR_JMMF-1-1_005
تاریخ نمایه سازی: 17 فروردین 1400
چکیده مقاله:
In financial markets , dynamics of underlying assets are often specified via stochasticdifferential equations of jump - diffusion type . In this paper , we suppose that two financialassets evolved by correlated Brownian motion . The value of a contingent claim written on twounderlying assets under jump diffusion model is given by two - dimensional parabolic partialintegro - differential equation ( P I D E ) , which is an extension of the Black - Scholes equation witha new integral term . We show how basket option prices in the jump - diffusion models , mainlyon the Merton model , can be approximated using finite difference method . To avoid a denselinear system solution , we compute the integral term by using the Trapezoidal method . Thenumerical results show the efficiency of proposed method .Keywords: basket option pricing, jump-diffusion models, finite difference method.
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نویسندگان
Parisa Karami
Department of Matematics, Allameh Tabataba`i University,Tehran, Iran
Ali Safdari
Department of Mathematics, Allameh Tabataba&#۰۳۹;i University