𝔖 Bobbio Scriptorium
✦   LIBER   ✦

Pricing foreign equity options under Lévy processes

✍ Scribed by Shian-Chang Huang; Mao-Wei Hung

Publisher
John Wiley and Sons
Year
2005
Tongue
English
Weight
262 KB
Volume
25
Category
Article
ISSN
0270-7314

No coin nor oath required. For personal study only.

✦ Synopsis

This article investigates the valuation of a foreign equity option whose value depends on the exchange rate and foreign equity prices. Assuming that these underlying price processes are correlated and driven by a multidimensional Lévy process, a method suitable for solving the complex valuation problem is developed. First, to reduce the number of dimensions of the problem, the probability measure is changed to embed some dimensions of the Lévy process into the pricing measure. Second, to simplify the integral complexity of the discounted terminal payoff, the valuation problem is transformed to Fourier space. The main contribution of this study is that by combining these two methods, the multivariate valuation problem is significantly simplified, and very accurate results are obtained relatively quickly. This powerful method can also be applied to other multivariate pricing problems involving Lévy processes.

📜 SIMILAR VOLUMES

Numerical pricing of American options un
Numerical pricing of American options under infinite activity Lévy processes
✍ Nisha Rambeerich; Desire Yannick Tangman; Muddun Bhuruth 📂 Article 📅 2010 🏛 John Wiley and Sons 🌐 English ⚖ 245 KB

## Abstract Under infinite activity Lévy models, American option prices can be obtained by solving a partial integro‐differential equation (PIDE), which has a singular kernel. With increasing degree of singularity, standard time‐stepping techniques may encounter difficulties. This study examines ex

The pricing of foreign currency options
The pricing of foreign currency options under jump-diffusion processes
✍ Chang Mo Ahn; D. Chinhyung Cho; Keehwan Park 📂 Article 📅 2007 🏛 John Wiley and Sons 🌐 English ⚖ 238 KB 👁 1 views

## Abstract In this article, the authors derive explicit formulas for European foreign exchange (FX) call and put option values when the exchange rate dynamics are governed by jump‐diffusion processes. The authors use a simple general equilibrium international asset pricing model with continuous tr

Pricing bounds for discrete arithmetic A
Pricing bounds for discrete arithmetic Asian options under Lévy models
✍ D. Lemmens; L.Z.J. Liang; J. Tempere; A. De Schepper 📂 Article 📅 2010 🏛 Elsevier Science 🌐 English ⚖ 432 KB

Analytical bounds for Asian options are almost exclusively available in the Black-Scholes framework. In this paper we derive bounds for the price of a discretely monitored arithmetic Asian option when the underlying asset follows an arbitrary Lévy process. Explicit formulas are given for Kou's model

On approximating deep in-the-money Asian
On approximating deep in-the-money Asian options under exponential Lévy processes
✍ Leonard Tchuindjo 📂 Article 📅 2010 🏛 John Wiley and Sons 🌐 English ⚖ 126 KB

## Abstract This note proposes a new approach of valuing deep in‐the‐money fixed strike and discretely monitoring arithmetic Asian options. This new approach prices Asian options whose underlying asset price evolves according to the exponential of a Lévy process as a weighted sum of European option