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Approximate basket option valuation for a simplified jump process

✍ Scribed by Dimitris Flamouris; Daniel Giamouridis


Book ID
102214798
Publisher
John Wiley and Sons
Year
2007
Tongue
English
Weight
176 KB
Volume
27
Category
Article
ISSN
0270-7314

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✦ Synopsis


Abstract

This study proposes the use of a simplified jump process, namely the Bernoulli jump process, to develop approximate basket option valuation formulas. The proposed model is based on a more realistic stochastic processβ€”relative to the standard geometric Brownian motionβ€”without introducing additional intractability. Typical approximations, necessary for the development of the closed form formulas, are validated on the basis of a Monte Carlo experiment. Β© 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:819–837, 2007


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