Lower bound approximation of nonlinear basket option with jump-diffusion

We extend the method presented by  Xu and Zheng (Int. J. Theor. Appl. Finance ۱۷ (۲۰۱۴) ۲۱--۳۶) for the general case. We develop a numerical-analytic formula for pricing nonlinear basket options with jump-diffusion model. We derive an easily computed method by using the asymptotic expansion to find the approximate value of the lower bound of nonlinear European basket call prices since a nonlinear basket option is generally not closed-form. We use  Split Step Backward Euler and Compensated Split Step Backward Euler methods with Monte Carlo simulation to check the validity of the presented method.

کلیدواژه ها:

Basket option ، nonlinear stochastic differential equations ، Poisson process ، Split Step Backward Euler method