Journal of Applied Mathematics

Pricing Basket Options by Polynomial Approximations

Pablo Olivares and Alexander Alvarez

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Abstract

We propose a closed-form approximation for the price of basket options under a multivariate Black-Scholes model. The method is based on Taylor and Chebyshev expansions and involves mixed exponential-power moments of a Gaussian distribution. Our numerical results show that both approaches are comparable in accuracy to a standard Monte Carlo method, with a lesser computational effort.

Article information

Source
J. Appl. Math., Volume 2016 (2016), Article ID 9747394, 12 pages.

Dates
Received: 2 May 2016
Revised: 21 July 2016
Accepted: 26 July 2016
First available in Project Euclid: 17 December 2016

Permanent link to this document
https://projecteuclid.org/euclid.jam/1481943640

Digital Object Identifier
doi:10.1155/2016/9747394

Mathematical Reviews number (MathSciNet)
MR3557892

Citation

Olivares, Pablo; Alvarez, Alexander. Pricing Basket Options by Polynomial Approximations. J. Appl. Math. 2016 (2016), Article ID 9747394, 12 pages. doi:10.1155/2016/9747394. https://projecteuclid.org/euclid.jam/1481943640


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